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in  2014 

https  ://arc  h  i  ve .  o  rg/detai  I  s/f  o  rbes  1 30octf  o  rb 

For  Reference 

Not  to  be  taken  from  this  room 

Every  person  who  maliciously 
cuts,  defaces,  breaks  or  injures 
any  book,  map,  chart,  picture, 
engraving,  statue,  coin,  model, 
apparatus,  or  other  work  of  lit- 
erature, art,  mechanics  or  ob- 
ject of  curiosity,  deposited  in 
any  public  library,  gallery, 
museum  or  collection  is  guilty 
of  a  misdemeanor. 

Penal  Code  of  California 
1915,  Section  623 

October  11, 1982 



(jCT  $  1382  J 



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sim     en  ana  3wn\nana 

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EN  1715 

,  HI 


M  ARTELL  fit  C*.  COGNAC 


David  Mahoney,  Chairman  of  Avis. 

Now,  Avis  has  a  service  to 
get  you  from  your  plane  to 
your  car  that's  so  fast  and 
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Your  name  is  your  password  to  get  you  to 
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Avis  features  GM  cars 
Chevrolet  Celebrity. 

The  other  express  service 

requires  a  pass. 
But  with  Avis  Express, 
we  just  need  your  name. 

ready  for  your  signature.  Your  car  will  be 
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Ask  for  Avis  Express,  and  you'll  see  why . . . 



IBM  Series  III  Xerox  5400 

Model  10  $22,635  $16,095 

©1982  Minolta  Corporation  Product  appearance  and  or  specifications  subiect  to  change  without  notice 

Xerox*  and  IBM*  are  registered  trademarks  of  Xerox  Corporation  and  International  Business  Machines  Corporation,  respectively  Prices  are  those  in  effect  as  of  7/1/82 

ir  crisp,  clear  copies, 
we  tied. 

ctually,  we're  being  modest, 
ihe  truth  is  we  won.  Because  74%  of  con- 
fers interviewed  by  Nationwide  Consumer 
:ing  Institute  said  the  copies  produced  by 
EP  300  were  clearly  superior  to  those  from 
Xerox*  and  IBM*  copiers, 
o,  while  the  Xerox  and  IBM  certainly  do 
er  jobs,  they  don't  do  better  jobs  than  the 
olta  EP  300  when  it  comes  to  copy  quality. 

Minolta  EP  300 


One  reason  is  Minolta's  exclusive  micro- 
toning  system.  Its  ultra-fine  particles  give  you 
crisp,  clear  copies  with  blacker  blacks.  Quality 
from  top  to  bottom.  And  edge  to  edge.  On 
virtually  any  paper  up  to  10  x  14" 

And  that's  just  the  beginning. 

The  EP  300  also  has  an  electronic  trouble- 
shooter  that  catches  small  problems  before 
they  become  big  ones.  A  universal  paper  tray 
that  lets  you  switch  copy  sizes  without  switch- 
ing trays.  And  Minolta's  renowned  dependability. 

And  thanks  in  part  to  an  advanced  fiber 
optics  lens  system,  it  all  fits  into  a  copier 
that's  hardly  larger  than  an  office  typewriter. 

If  you'd  like  to  see  the  results  of  the  test, 
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If  you'd  like  the  name  of  your  nearest 
authorized  Minolta  dealer,  look  under  our 
trademark  in  the  Yellow  Pages  Or  call  toll-free 
800-526-5256.  In  New  Jersey,  201-797-7808. 

The  Minolta  EP  300.  The  small  copier  that 
proves  size  isn't  everything. 

The  Minolta  EP  300. 

At  up  to  10  times  the  price,  we'd  still  look  good. 

□  Please  send  me  the  copy  test  results. 

□  I'd  like  more  information  Please  have  my  local  dealer 
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Mail  to  Minolta  Corporation.  Business  Equipment  Division.  101  Williams  Drive. 
Ramsey  Nl  07446 


October  11,  1982 
Volume  130, 
Number  8 

150  Cover  Story 
The  game  is  over. 

43  HAT  No  longer  fust 
throwing  money  at  it 

73  The  Up  &  Comers. 

Just  hang  in  there,  buddy, 
because  those  who  get' im- 
patient trill  sell  out  cheap  " 

39  Aerospace: 

The  Big  Dogfight 

And  somebody  is  going  to  go  down  in  smoke. 

40  Cable  Television: 

The  Strong  Get  Stronger 

CBS  Cable  may  be  only  the  first  to  go;  the 
shakeout  is  closer  than  most  realize. 

41  Companies: 
Pittston  Co. 

In  the  pits  with  "Mr.  Coal." 

42  Monaco: 

Pavane  For  A  Dead  Princess 

A  tragic  loss — in  business  terms,  too. 

43  Companies: 

British  American  Tobacco 

The  pieces  are  falling  into  place. 

45  Fast-Food  Chains: 

The  End  Of  The  Burger  Boom? 

Believe  it  or  not,  Americans  may  be  getting 
jaded  about  one  of  their  favorite  foods. 

51  Distribution: 

Productivity  Is  More  Than  Robots 

Eight  ways  to  turn  a  dull  business  into  a 
glamorous  business. 

58  Companies: 
Sysco  Corp. 

The  secret:  paying  attention  to  details. 

60  The  Up  &  Comers: 

New  Hampshire  Ball  Bearings 

Japan  Inc.  versus  Our  Town. 

73  The  Up  &  Comers: 
McRae  Industries 

Opportunity  came  knocking — in  the  form  of 
combat  boots. 

93  Profiles: 

Michael  Swerdlow 

Turning  liabilities  into  assets  for  bankrupt 
companies  sounds  like  alchemy.  Actually, 
it's  just  good  business. 

98  Bankruptcies: 

Don't  Cry  For  Manville's  Creditors 

They  could  have — and  should  have — known. 

102  Companies: 

Payless  Cashways 

For  50  years  it  has  been  giving  its  managers 
generous  incentives.  Clearly,  the  practice  has 
paid  off. 

108  Companies: 

Tucson  Electric  Power 
A  little  fancy  footwork  always  helps. 

112  Companies: 
H.  J.  Heinz  Co. 

Hold  prices.  Lower  costs.  Raise  advertising. 

118  Companies: 
Data  General 

As  it  has  before,  it  is  once  more  coming  from 
behind.  But  this  time,  the  maverick  of  mini- 
computers almost  waited  too  long. 

124  Companies: 

Pan  American  World  Airways 

One  definition  of  desperation:  selling  used 
planes  to  a  glutted  market. 

130  Companies: 

Fleetwood  Enterprises 

A  multiple  of  22 — for  an  RV  maker? 

132  Wall  Street: 
The  New  Breed 

They  aren't  called  "floor  traders"  anymore. 

139  Companies: 

United  Industrial  Corp. 

The  virtues  of  benign  neglect — sort  of. 

144  Companies: 
Logicon  Inc. 

"Why  bother  if  we  can't  build  a  company?" 

147  Tax  Shelters: 

A  Yardstick  Of  Performance 

Rating  how  well  your  shelter  shelters. 

150  Cover  Story: 

Who  Will  Pay  The  Piper?  Who  Won't? 

Given  some  good  news  from  Mexico,  the 
worst  of  the  liquidity  squeeze  may  be  over. 

156  The  Military: 
Hail  And  Farewell 

The  jeep  is  dead.  Long  live  the  Humvee? 

161  Taxing  Matters: 

The  Tax  Shelter  Nobody  Wants 

And  for  very  good  reasons,  as  it  turns  out. 

164  The  Funds: 
Janus  Fund 

The  satisfactions  of  nondogmatism. 

166  Companies: 
Primark  Corp. 

Putting  the  heat  on  an  old  boss. 

168  Companies: 

Tishman  Realty  &  Construction  Co. 

A  famous  name  wants  a  piece  of  the  action. 

172  Fast  Food: 

Frank  Carney's  Back  Again 

Why  settle  for  a  mere  $300,000  a  year? 



t — 

93  Profiles:  "What  Swerd- 
low  says  he's  going  to  do, 
he  does  " 

102  Payless:  the  do-it-your- 
self do  -it -you)  selfe) : 

172  Entrepreneur  Frank 
Carney:  '"When  you  stop 
growing,  you  start  dying. " 

250  Leveraged  buyouts: 
Bigger  is  not  necessarily 

183  Language: 

A  Few  Words  On  Business 

Ever  wonder  where  "sub  rosa"  comes  from? 
190  The  Money  Men: 

Michael  O'Higgins 
Aggressive  in  defeat,  cautious  in  success. 
192  Companies: 

Control  Data  Corp. 
If  you  think  it's  nerve-wracking  dealing  with 
U.S.  unions,  try  Korea's. 
196  Research: 

Easier  Said  Than  Done 
A  great  idea  that  will  take  some  time. 
202  The  Numbers  Game: 

The  Banks'  Foreign  Loan  Exposure 
How  much  do  they  really  have  to  tell  you? 

206  Technology: 

Transaction  Processing 

For  all  the  talk  about  personal  computers, 
there's  still  need  for  the  leviathans. 

212  Personal  Affairs: 

The  Market  In  Your  Pocket 

A  portfolio  of  gadgets  that  will  give  you  stock 
quotations  wherever  you  are. 

Faces  Behind  The  Figures 

226  Thomas  Differ, 

Getty  Oil  Co. 

226  Stephen  Kroft  and  Dean  Dunlavey, 

Sony  v.  Universal 

227  Mario  Perillo, 
Perillo  Tours 

227  Victor  Brown, 
Firestone  Tire  &)  Rubber  Co. 

228  Thomas  O'Reilly, 
Juki  Office  Machine  Corp. 
228  Hans  Seidel, 

Deputy  Finance  Minister  of  Austria 

233  Jacques  Voorhees, 

Polygon  DTN,  Inc. 

233  W.  Ashley  Verlander, 

American  Heritage  Life 

238  The  Streetwalker: 

An  Old  Game  With  New  Rules 

Playing  the  disinflationary  recovery. 
240  Statistical  Spotlight: 

A  No-Name  Shopping  List 
What  happens  when  the  blue  chips  falter? 
250  Leveraged  Buyouts: 

A  Few  Cautionary  Tales 
Sometimes,  everybody  loses. 

Money  And 


What's  Ahead 
For  Business 

The  Forbes  Index 

The  Forbes/ 
Wilshire  5000 



Ben  Weberman 

Srully  Blotnick 

Ashby  Bladen 

Richard  B.  Hoey 

Thomas  P.  Murphy 

Stanley  W.  Angrist 


Side  Lines 



Readers  Say 

Fact  and  Comment 

Other  Comments 

Editorial  Index 




10,  Larry  Smith/Black  Star,  12,  238,  UPI,  42,  B.  Melloul/Sygma; 
43,  44,  Robin  Laurence,  46,  Dan  McCoy/Black  Star;  51,  56,  Arnold 
Zann/Black  Star;  52,  Peter  Calvin/Camera  5,  60,  61,  118,  Steve 
Liss/Liaison;  68,  132,  148,  227  middle  and  bottom,  Bill  Kelly; 
73,  Steve  Murray,  93,  )im  Pozarik,  102,  Hank  Young/Black  Star; 
108,  Tucson  Citizen;  112,  168,  190,  Joyce  Ravid,  129,  Iim 
Sugar/Black  Star,  130,  144,  226  top,  227  top,  )im  McHugh, 
139,  233  bottom,  Paul  Solomon;  151  Evonne  Hemsey/Liaison; 
154  top.  Wide  World;  154  bottom,  T.  Korody/Sygma,  164,  Carl 
Iwasaki;  166,  Eric  Smith/Liaison;  177,  Bill  Grimes/Black  Star; 
194,  Roland  Neven/Liaison;  212,  Eric  Poggenpohl;  215, 
|oe  McNally/Camera  5,  226,  Dan  Wheeler;  228  top  Tom 
McCarthy;  228  bottom,  Fred  DeVan,  233  top,  ludith  Gcfter 

6,  By  permission  of  Bill  Mauldin  and  Wil-)o  Associates,  Inc.;  98, 
161,  183,  184,  185,  202,  Chas.  B.  Slackman 
Ed  Sorel 

Forbes(ISSN  00 15  69 14)  is  published  biweekly  by  Forbes  Inc.,  60  Fifth 
Ave.,  New  York,  N  Y  1001 1 .  Second-classpostagcpaidat  New  York, 
N  Y.  and  at  additional  mailing  offices.  Subscription  $33  a  year, 
U.S.A.  Postmaster:  Send  address  changes  to  Forbes,  60  Fifth  Ave., 
New  York  N  Y  10011.  Copyright  ©  1982  Forbes  Inc.  Title  is 
protected  through  a  trademark  registration  in  theU.S  Patent  Office. 

FORBES.  OCTOBER  11.  1982 



Side  Lines 


James  W.  Michaels 

Managing  Editor 

Sheldon  Zalaznick 

Assistant  Managing  Editors 

lames  Flanigan,  Geoffrey  Smith,  Paul  Sturm 
Executive  Editors:  James  Cook,  Jefferson  Grigsby 
Economics  Editor:  Ben  Weberman 
Art  Director:  Everett  Halvorsen 

Senior  Editors:  Ruth  M.  Gruenberg,  Howard  Rudnitsky, 

John  A.  Conway,  William  G  Flanagan,  Thomas  O'Donnell, 

Stephen  Kindel,  Harold  Seneker 

Contributing  Editors:  Richard  Phalon, 

Clothield  Spencer,  Norman  Gall,  Dero  A.  Saunders 

Associate  Editors:  Jean  A.  Briggs,  Subrata  N.  Chakravarty, 

Christine  Miles,  Donald  E  Zipperer,  Carol  E.  Curtis, 

Richard  Greene,  Eamonn  Fingleton,  Richard  L.  Stem, 

Betty  Franklin,  Barbara  Ettorre,  lohn  R.  Dorfman,  Pnscilla  S.  Meyer, 

Howard  Banks,  Steve  Kichen 

Staff  Writers:  John  A.  Byrne,  Pamela  Shernd 

Reporters:  Steven  Flax,  William  Harris,  Thomas  Jaffe, 

Paul  B.  Brown,  Jane  Carmichael,  Jeff  Blyskal,  Barbara  Rudolph 

Senior  Reporter-Researchers:  Alyssa  A.  Lappen, 

Jonathan  Greenberg,  Jayne  Pearl,  Paul  Bornstein 

Reporter-Researchers:  Merrill  Vaughn,  Jon  Schnber,  Jay  Gissen, 

Janet  Bamford,  Laura  Saunders,  Robert  McGough,  Anne  Field, 

Laura  Rohmann,  Kevin  McManus,  Ellyn  Spragins,  Aaron  Bernstein, 

Robert  Teitelman,  lill  Andresky,  Theodore  Lowen 

Washington  Bureau:  Jerry  Flint,  Manager;  Allan  Dodds  Frank, 

Desiree  French 

West  Coast  Bureau:  John  Merwm,  Manager;  Kathleen  K.  Wiegner, 
Michael  Cieply,  Ellen  Paris 

Southwestern  Bureau:  William  Baldwin,  Manager; 
Toni  Mack,  Anne  Bagamery 

Midwestern  Bureau:  Maurice  Barnfather,  Manager; 
Lisa  Gross,  Bess  Gallams 

European  Bureau:  Lawrence  Minard,  Manager;  Rosemary  Brady 
Columnists:  Heinz  H.  Biel,  Stanley  W.  Angnst,  Srully  Blotnick, 
Thomas  P.  Murphy,  Richard  B.  Hoey,  David  Dreman,  Ashby  Bladen 
Art  Department:  Roger  Zapke,  Ronda  Kass,  Associate  Art  Directors; 
Robert  Mansfield,  Assistant  Art  Director;  Nikki  Frost, 
Thea  S.  Wieseltier,  Photo  Editors;  Hadas  Siev,  Photo  Research; 
Andrew  Christie,  Charts 

Information  Services:  Robert  M.  Sterenson,  Manager; 
Library:  Dolores  A.  Lataniotis,  Chief;  Clanta  Jones, 
Santiago  Alvarado,  Gloria  Katz 

Statistics:  Donald  E.  Popp,  Editor;  Maria  M  Latorraca,  Associate 

Editor;  Ann  C.  Oliver,  Assistant  Editor;  Edward  Sakalian, 

Melody  Wagstaff,  Diana  L.  Hoadley 

Copy  Department:  Marlene  Mandel,  Deputy  Chief; 

Jane  Lashaw,  Dolores  Guilhot 

Director  of  Production:  John  J  Romeo; 

Robert  M.  Rosengarten,  Edward  B.  Morgan,  Peter  Althoff, 

Joseph  De  Gray,  Lucille  Landi,  Assistants 

Advertising  Production:  Patricia  Deckelnick 

Director  of  Photocomposition:  James  Cianelli, 

Karen  Heuler,  Assistant,  Mark  Decker,  Johnnie  English,  Arthur  Petz 

Chairman  and  Editor-in-Chief 

Malcolm  S.  Forbes 

President  and  Deputy  Editor-in-Chief 

Malcolm  S.  Forbes  Jr. 


James  J.  Dunn 

Executive  Vice  President 

Leonard  H.  Yablon 

Vice  President-Associate  Publisher:  Christopher  Forbes 

Vice  President-Administration:  Scott  R  Yablon 

Vice  President-Finance:  Seymour  Fried 

Vice  President-Controller:  Joel  B.  Redler 

Vice  President-Treasurer:  Leonard  Greenberg 

Director  of  Advertising:  Stephen  G  Nicoll 

Director  of  Corporate  Communications:Wm.  Donald  Carson 

Director  of  Circulation:  John  M  Thornton 

Director  EDP:  Jerome  Hoffman 

Advertising  Representatives: 

New  York:  Donald  W.  MacDonald,  Mgr. 

George  C.  Clissold,  G.  Croft  Henry;  Richard  Calkins; 

Ellen  S.  Dweck,  Jeffrey  M.  Cunningham, 

Christopher  M.  Andrews,  Nick  Carter; 

Arnold  J.  Pnves,  Director,  Advertising  Supplements; 

Thomas  G.  Petersen,  Co-Dir.  Adv.  Supplements; 

Joan  E  van  Diepen,  Co-Dir.  Adv.  Supplements 

James  W.  LaCirignola,  Dir.  Int'l  Adv.,  The  Americas,  Asia,  Pacific 

Atlanta:  Charles  S.  Thorn  Jr.,  Mgr. 

Chicago:  James  H.  Mallon,  Mgr. 

William  J.  Powers  Jr ,  Robert  W.  Buckley  Jr. 

Cleveland:  James  B.  Norton,  Mgr. 

Dallas:  Fred  H. Wellington,  Mgr 

Detroit:  Don  Dane,  MgT 

Los  Angeles:  Craig  E.  Miller,  Mgr. 

San  Francisco:  Richard  W.  Reynolds,  West  Coast  Mgr. 

London:  Peter  M.  Schoff,  Dir.  Int'l  Adv. 

Corp.  Report  Updates:  Sarah  Mai 

Classified:  Linda  Loren 

Mgr.  Subscription  Service:  T.M.  York  (212-620-2243) 
60  Fifth  Ave.,  New  York,  N.Y.  10011 


FOUNDED  1917  BY  B.C.  FORBES  11880-1954) 

Issue  of  June  23,  1980 

No  scare  talk 

"Too  much  contemporary  journal- 
ism is  crisis  journalism — written  as 
though  events  have  taken  place  in  a 
vacuum,  as  though  they  do  not  have 
roots  and  parallels  in  history,"  we 
noted  in  a  story  in  the  issue  of  June 
23,  1980.  The  thought  was  prompted 
by  the  cover  story  in  that  issue:  "Re- 
cycling petrodollars — how  much 
more  can  the  system  take?"  Con- 
tributing Editor  Norman  Gall,  who 
wrote  the  story,  strongly  doubted 
that  the  Western  banking  system 
could  go  on  much  longer  accepting 
the  huge  dollar  deposits  from  oil- 
rich  Arab  states  and  putting  them 
right  back  out  again  in  loans  to  in- 
creasingly burdened  borrowers.  "If 
an  American  bank  lends  Arab  mon- 
ey to  an  African  nation  so  that  the  African  nation  can  burn  oil,"  Gall 
wrote,  "there  is  no  productive  investment  generating  cash  to  pay  the 
interest.  So  much  for  those  who  say,  'Why  not  just  roll  these  loans 
over  and  over?'  People  will  lend  you  long-term  money  to  buy  a  house 
or  build  a  factory.  But  who  would  give  you  a  25-year  loan  for  a  big 
party  you  want  to  throw  tomorrow?" 

Gall  went  beyond  facts,  figures  and  sharp  analogies  in  that  report  to 
find  fascinating  parallels  in  history  dating  back  to  Lorenzo  de  Medici's 
troubles  as  banker  to  brawling,  backward  borrowers  in  14th-century 

In  this  issue  Gall  takes  another  thoughtful  look  at  the  state  of 
international  banking.  From  his  base  in  Sao  Paulo,  Gall  was  well 
placed  to  tap  sources  in  four  especially  troubled  countries — Brazil, 
Chile,  Argentina  and  Mexico.  Again,  you  will  find  his  report  short  on 
surface  scare  talk  and  long  on  perspective,  including  some  shrewd 
insights  of  a  brilliant,  little-known  Hungarian  economist,  Melchior 
Palyi,  into  why  and  how  banks  overextended  themselves  in  the  1920s. 
Gall's  report  begins  on  page  150. 

Four  Jills  in  a  Humvee? 

Readers  of  a  certain  age — those  who  remember,  say,  Carole  Landis 
and  Kay  Francis  co-starring  in  the  1944  movie  Four  Jills  in  a  Jeep — are 
entitled  to  one  small  sigh  as  they  read 
Allan  Dodds  Frank's  story  on  the  immi- 
nent retirement  of  the  jeep,  four- 
wheeled  workhorse  of  the  U.S.  military 
for  40  years.  Terrain  couldn't  kill  it,  but 
technology  could  .  .  .  and  did.  The  jeep  is 
too  small,  it  turns  out,  for  truck-mount- 
ed missiles  and  such.  The  Pentagon, 
Frank  reports  (p.  156),  is  staging  a  com- 
petition to  choose  its  replacement.  Bill 
Mauldin's  classic  World  War  II  cartoon 
will  probably  mean  nothing  to  anyone 
who  has  to  ask  who  Carole  Landis  and 
Kay  Francis  were. 

Managing  Editor 


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the  coupon  today.  Call  toll-free:  WF-102 


(Except  Hawaii  and  Alaska) 
In  New  York  call  1-914-967-6067 



Address:  _ 



Mail  to:  Dictaphone  Corporation 

120  Old  Post  Road,  Rye,  New  York  10580 

DfCtaphone  8.  Dual  Display  are  trademarks  of  Dictaphone  Corporation  Rye  New  Yon 

What  do  you  call  a  company 
with  a  22-year  record  of  increases  in 
earnings  per  share? 


When  looking  for  a  leader  in  energy,  energy 
services  and  resources,  it's  often  advisable  to  check 
beyond  a  company's  recent  performance. 

For  example,  has  the  company  shown  strong, 
consistent  growth  over  20, 10  or  even  5  years? 

Sonat  has.  We're  a  company  with  assets  and 
revenues  of  over  $2.6  billion.  Sonat's  earnings 
increased  18%  in  1981.  During  the  most  recent 
5-  and  10-year  periods,  earnings  per  share  grew  at 
16%  and  15%  respectively.  From  1959-1981,  earnings 
per  share  grew  at  a  compound  annual  rate  of  14%. 

We've  paid  a  dividend  every  year  for  the  past 
45  years.  Over  the  past  5  years,  the  dividend  rate 
has  grown  at  a  compound  annual  rate  of  19%, 
outpacing  inflation  by  over  9%. 

Today,  Sonat  Inc.  operations  across  the  U.S. 
and  overseas  include:  Southern  Natural  Gas, 
Sonat  Exploration,  Sonat  Offshore  Drilling, 
Sonat  Marine  and  Southern  Forest  Products. 

To  learn  still  more  about  us,  write:  Sonat  Inc., 
Corporate  Communications,  P.O.  Box  2563, 
Birmingham,  Alabama  35202.  Dept.  FB  I  0/11 
Telephone:  205/325-3800  or  212/344-7955. 
Ask  for  our  annual  report. 


Those  companies  looking  for  an 
ilvantageous  location  in  Washington 
ay  be  surprised  to  learn  there's  an 
keel  lent  address  available  near  the 
Ihite  House. 
Fairfax  County,  Virginia. 
By  locating  in  Fairfax  County,  any 
;  mpany  influenced  by  government  is 
a  good  position  to  influence  back 
ipitol  Hill,  regulatory  agencies  and 
|;y  staffers  are  just  30  minutes  away. 

Since  Washington  attracts  the  best 
id  the  brightest,  Fairfax  County  firms 
in  tap  an  executive,  managerial  and 
^rical  pool  perhaps  unequaled  any 
here  in  the  nation. 

Companies  here  also  have  at  their 
sposal  many  of  the  country  s  leading 
nsulting  and  accounting  firms,  prom 
ent  law  firms,  excellent  medical  and 
search  facilities  in  addition  to  many 
estigious  financial  institutions. 

Since  Capitol  Hill  is  at  the  center 
of  international  as  well  as  national 
affairs,  Fairfax  County  executives  can 
take  advantage  of  outstanding  trans- 
portation and  communication  systems 
to  reach  worldwide  markets.  Yet  for 
those  companies  who  do  business  closer 
to  home,  Washington  is  a  lucrative 
opportunity  itself.  It  ranks  among  the 
top  markets  in  the  country  in  apparel, 
furniture,  automobile  and  retail  sales. 

Equally  important,  Fairfax  County 
offers  a  productive  environment  for 
business.  From  our  AAA  bond  rating 
to  right  to  work  laws,  from  a  moderate 
tax  structure  to  8000  acres  zoned  for 
business,  this  is  a  county  so  suited  to 
business  that  over  1500  major  associa- 
tions, headquarters  and  corporations 
have  already  located  here. 

And  why  not?  With  these  rolling 
meadows  and  wooded  valleys  and  that 

historic  white  house  on  the  hill,  you 

can  easily  picture  this  to  be  the  best 

place  in  America  for  business  to  work, 
i  — i 

Please  send  me  complete  information  on  all  the 
advantages  of  a  Fairfax  County,  Virginia  location 
for  my  company. 







Inquire  in  confidence  to:  April  L.  Young,  Executive 
Director,  Fairfax  County  Economic  Development 
Authority,  8330  Old  Courthouse  Road,  Suite  800, 
Tysons  Comer,  Vienna,  Virginia,  22180.  Phone 



Pay  per  peek 

Though  24  million  American  homes 
now  have  cable  television,  only  2  mil- 
lion can  order  up  a  movie  or  TV  special 
on  a  one-time  fee  basis.  (Regular  cable 
service  means  taking  what  is  offered 
for  a  flat  fee.)  Cable  consultant  Mi- 
chael Marcovsky,  however,  predicts 
that  the  "pay-per-view"  cable  market 
could  swell  to  10  million  households 
by  1985  and  bring  in  gross  revenues  of 
about  $400  million  a  year.  "Pay-per- 
view  TV  will  be  to  the  1980s  what 
satellites  were  to  cable  television  in 
the  1970s,"  says  Marcovsky,  president 
of  Marnel  Associates  Ltd.  and  an  advis- 
er to  Cox  Cable,  Playboy  and  SFM 
Media,  among  others.  Pay-per-view 
works  through  special  computer  tech- 
nology, installed  at  cable  networks, 
that  allows  consumers  to  order  their 
movies  by  phone  or,  in  some  systems, 
by  simply  tuning  in  and  getting  the  bill 
later.  "Pay-per-view  TV  is  like  picking 
up  your  magazine  on  the  newsstand 
when  you  want  it,  rather  than  having 
it  delivered  by  subscription,"  Mar- 
covsky says.  One  of  the  first  national 
pay-per-view  offerings  is  scheduled  for 
this  fall,  when  20th  Century-Fox  plans 
to  air  its  box-office  blockbuster,  Star 
Wars,  for  $8  per  household,  a  show  it 
expects  to  gross  more  than  $3  million. 
Universal  is  getting  set  to  screen  the 
musical  Pirates  of  Penzance  on  pay-per- 
view  TV  early  next  year. 

The  sacred  cow 

After  watching  their  share  of  the  milk- 
packaging  market  shrink  from  78%  in 
1971  to  41%  today,  the  papermakers 
are  fighting  back.  The  Paperboard 
Packaging  Council's  milk-packaging 
group — International  Paper,  Weyer- 
haeuser, Westvaco,  Potlatch  and 
Champion — is  charging  that  translu- 
cent plastic  containers,  which  now 
have  58%  of  the  market,  allow  light  to 
damage  milk 's  vitamin  content  and  fla- 
vor. "Milk  in  plastic  can  be  robbed  of 
90%  of  its  fortified  Vitamin  A  and  14% 
of  its  Vitamin  B,  in  just  24  hours," 
warns  a  council  ad  that  ran  in  Sacra- 
mento. Similar  war  cries  (based  on  uni- 
versity nutritional  studies)  appeared  in 
Sioux  Falls,  S.  Dak.  and  in  Minneapo- 
lis-St.  Paul.  The  ads  curdled  the  milk  of 
a  number  of  interested  parties,  includ- 
ing the  Sacramento  district  attorney's 
fraud  division.  (The  California  Milk 
Advisory  Board  and  the  Milk  Industry 
Foundation,  the  Paperboard  Council 
says,  feared  that  the  cam),  ligns  were 
"negative  about  milk.")  Coi   umer  re- 

sponse, however,  delighted  the  paper- 
makers.  In  Sioux  Falls,  after  a  two- 
month  council  campaign,  suppliers  of 
23%  of  the  area's  milk  reported  a  sales 
increase  of  19%  and  sales  of  milk  in 
plastic  gallon  containers  dropped 
from  82%  to  32%.  The  stakes  arc  im- 
portant. The  milk-container  market, 
an  estimated  $370  million  in  1971,  is 
now  $961  million,  even  though  con- 
sumption has  remained  steady  at  5.8 
billion  gallons  a  year. 

The  ultimate  producer 
Millions  in  the  milk  pail. 

Health  and  unemployment 

Recessions  wreck  balance  sheets  and 
they  don't  do  much  for  public  health 
either,  according  to  M.  Harvey  Bren- 
ner, a  Ph.D.  and  professor  at  the  Johns 
Hopkins  School  of  Public  Health. 
Congress  asked  Brenner  to  study  the 
correlation  and  he  will  report  to  the 
Joint  Economic  Committee  next  Janu- 
ary. His  statistics  show  an  ominous 
connection.  When  unemployment 
rises  1%,  he  says,  first-time  admis- 
sions to  state  mental  hospitals  in- 
crease 4.3%  for  men  and  2.3%  for 
women;  suicides  go  up  4. 1  % ;  murders, 
5.7%;  and  state  prison  populations, 
4% .  Over  a  six-year  stretch  following  a 
jump  in  the  jobless  rate,  Brenner  re- 
ports, 1.9%  more  people  die  of  heart 
disease,  cirrhosis  and  other  stress-re- 
lated chronic  ailments.  He  estimates 
the  economic  slump  in  1970,  with  its 
1.4%  increase  in  unemployment,  was 
linked  to  51,570  deaths  by  1975.  The 
effect  of  an  unemployment  increase, 
Brenner  told  the  House  Banking  Com- 
mittee this  summer,  falls  hardest,  nat- 
urally, on  the  job  losers  and  their  fam- 
ilies and  dependents.  But  it  also  hits 
those  who  lose  income  because  of 

Edited  by  John  A.  Conway 

small  and  medium-size-business  fail- 
ures and  workers  in  companies  where 
the  survival  of  jobs  and  of  the  firms 
themselves  are  in  jeopardy.  The  im- 
pact of  unemployment,  or  related 
work  stress,  he  says,  frequently 
doesn't  ease  for  up  to  two  to  four  years 
after  a  recession  strikes. 

New  voice  in  the  trade  war 

The  transatlantic  war  of  words  over 
international  trade  has  a  fresh  voice, 
that  of  Roy  Denman,  the  European 
Common  Market's  new  economic  am- 
bassador to  the  U.S.  In  his  first  blast 
since  arriving  in  Washington,  Den- 
man, a  respected  British  trade  expert 
and  negotiator,  told  the  U.S.  Chamber 
of  Commerce  that  "relations  across 
the  Atlantic  are  going  through  the 
roughest  patch  in  living  memory." 
The  world's  trade  system  could  col- 
lapse, he  said,  if  the  Reagan  Adminis- 
tration persists  in  its  "single-minded 
and  aggressive  pursuit"  of  American 
interests  in  steel  and  farm  products 
and  in  trying  to  block  the  Soviet  gas 
pipeline.  The  charge  that  previous 
U.S.  trade  negotiators  had  been  too 
soft  with  Europe,  Denman  said,  is  just 
not  true:  "John  Connally,  Mike  Blu- 
menthal  and  Bob  Strauss  come  to 
mind,  and  anyone  who  thinks  he  could 
make  a  quick  dollar  out  of  those  men 
believes  in  unicorns." 

Home -buyer  blues 

Hopeful  home  buyers  had  best  keep 
on  hoping.  Mortgage  rates  are  not  go- 
ing to  fall  significantly  before  at  least 
next  spring,  according  to  the  experts. 
Long-term  lenders  are  leery  that  huge 
federal  deficits  will  heat  up  the  de- 
mand for  credit  again,  and  the  princi- 
pal mortgage  lenders,  the  savings  and 
loan  associations,  say  they  can't  drop 
below  15%  or  16%  until  their  own 
borrowing  costs  come  down.  "It  will 
take  more  than  just  a  few  weeks  of 
lower  interest  rates  before  home 
mortgage  rates  can  fall  much  below 
where  they  are  now,"  was  the  word 
from  Roy  Green,  the  Jacksonville,  Fla. 
S&L  president  who  is  chairman  of  the 
U.S.  League  of  Savings  Associations. 
Nearly  a  quarter  of  their  deposits,  he 
told  a  group  of  S&T  executives,  are  in 
high-interest,  30-month  certificates, 
so  they  are  saddled  with  expensive 
money  for  months  or  years  ahead. 
Timothy  Howard,  chief  economist  for 
the  Federal  National  Mortgage  Asso- 
ciation, the  federal  agency  that  buys 
mortgage  paper  from  banks  and  S&Ls, 


FORBES.  OCTOBER  11.  1982 



The  true  test  of  a  typewriter  is  how 
long  it  runs  before  it  stops. 

In  endurance  tests  in  Switzerland, 
the  Hermes  electronic  51  typed  an 
incredible  5,000  hours  before  needing  an 
adjustment.  That's  equivalent  to  more 
than  five  years  of  average  office  use! 

Engineered  in  Switzerland,  each 
Hermes  typewriter  is  hand-assembled  by 
technicians  who  are  nothing  less  than 
fanatical  about  the  quality  that  goes  into 
a  Hermes.  (We've  been  making  quality 
typewriters  since  1922.) 

For  example,  where  most  electronic 
typewriters  use  a  thin  cord  to  move  the 
printer,  Hermes  uses  a  half  inch  thick 
steel  rod.  This  prevents  vibration  and 
gives  you  exceptional,  clear,  sharp  print 

Before  a  Hermes  electronic  typewriter  gets  to  your  office,  And  each  HeimeS  typewriter  goes 

it  goes  through  endurance  tests  by  robots.  through  no  less  than  15  quality  control 

ests.  Not  only  is  each  typewriter  tested,  each  component  is  tested. 

As  for  features,  we  offer  everything  the  big  name  electronics 
)ffer  and  more:  unlimited  and  upgradable  memory  models, 
',0  character  text-editing  display  screen,  proportional 
pacing,  etc.  And  exclusive  features  like  a 
teel  print  wheel,  mini-proportional  printing, 
nd  an  illuminated  writing  line.  (Even  with 
11  these  features,  you'll  be  pleased  at  how 
ompetitively  our  electronics  are  priced.) 

We  offer  a  complete  line  of  easy  to  learn 
lectronic  typewriters  with  prices  and  features 
b  meet  every  need,  including  the  basic 
European  built  Hermes  21. 

So  if  you're  considering  a  new  typewriter, 
X)k  beyond  the  big  names  and  consider  a  Hermes  electronic. 

After  all,  when  it  comes  to  typewriters,  the  question  isn't  only  what  it  can  do,  it's 
mu  long  it  can  do  it. 

I'm  interested  in  a  Hermes 
electronic  typewriter.  Please  contact  me. 

Name  Title 






Send  to:  Hermes  Products,  Inc.  1900  Lower  Rd.,  Linden,  New  Jersey  07036 


The  only  typewriter  in  the  world 
built  with  Swiss  precision. 



says  he  does  expect  mortgage  rates  to 
level  off  between  15%  and  16%  in  the 
next  few  months.  But,  warns  the  man 
from  Fannie  Mae,  "they  will  not  go 
dramatically  lower  soon." 

Who's  too  oid? 

With  no  fanfare,  a  move  is  under  way 
on  Capitol  Hill  to  eliminate  manda- 
tory retirement.  Federal  workers  al- 
ready can  work  as  long  as  they  choose, 
and  Congress  wants  to  extend  that 
right  to  private  industry.  Pennsylva- 
nia's GOP  Senator  John  Heinz  and 
Florida  Democrat  Claude  Pepper  in 
the  House  are  pushing  a  bill  to  do  this. 
The  legislation  would  not  affect  hir- 
ing or  promotion  for  over-70  workers 
but  would  make  it  illegal  to  force  any- 
one to  retire  solely  because  of  age. 
The  sponsors  can  count  on  one  potent 
backer,  71 -year-old  President  Reagan, 
who  has  said:  "When  it  comes  to  re- 
tirement, the  criterion  should  be  fit- 
ness for  work,  not  year  of  birth."  Cor- 
porations and  business  groups  gener- 
ally are  fighting  the  idea,  saying  they 
can't  promote  younger  employees  if 
their  seniors  won't  leave.  Firing  older 
workers  for  other  reasons,  business- 
men also  argue,  will  mean  a  spate  of 
lawsuits  charging  age  discrimination. 
Such  litigation,  in  fact,  has  already 
become  routine  when  anyone  over  40 
is  let  go;  such  suits  have  tripled,  to 
about  15,000  annually,  in  the  last  four 
years,  and  out-of-court  settlements 
went  from  $12  million  in  1980  to  $28 
million  last  year. 

Hard  times  for  hard  hats 

The  construction  industry,  where  the 
union  card  used  to  come  with  the 
hard  hat,  now  awards  about  60%  of  its 
projects  to  nonunion  shops,  according 
to  the  16,000-member  Associated 
Builders  &.  Contractors.  Since  ABC 
began  courting  jobs  in  seven  cities  last 
January,  says  its  president,  John  Field- 
er, it  has  landed  more  than  $200  mil- 
lion worth  and  is  negotiating  for  an- 
other $380  million.  (The  seven  targets 
were  Atlanta,  Boston,  Cincinnati, 
Dallas,  Los  Angeles,  Miami  and  Seat- 
tle.) Fielder  also  claims  success  in 
places  like  Mobile,  Ala.,  saying  non- 
union shops  (ABC  calls  them  "merit 
shops")  have  landed  85%  of  all  con- 
struction jobs  there  since  1975,  when 
they  had  only  15%.  "The  real  shift," 
he  says,  "has  been  on  the  large  indus- 
trial projects  like  refineries  and  petro- 
chemical facilities."  The  AFL-CIO 
counters  that  ABC's  gains  have  been 

mostly  on  penny-ante  jobs  and  labor 
has  had  successful  organizing  drives 
in  centers  like  Houston  and  southern 
California.  With  unemployment  at 
22%  of  4.1  million  members,  howev- 
er, a  spokesman  says:  "Our  people  are 
taking  jobs  wherever  they  can,  so  I 
can't  say  we  don't  have  union  people 
in  nonunion  jobs."  To  stem  the 
losses,  the  AFL-CIO's  15  construction 
unions  hope  to  lend  $500  million  of 
their  pension  money  to  banks  for  con- 
struction loans,  and  "we  would  ex- 
pect the  banks  to  use  the  money  for 
union  projects,"  the  spokesman  says. 

The  kudos  champion 

The  current  record  holder  for  honor- 
ary degrees  is  Notre  Dame's  presi- 
dent, the  Rev.  Theodore  Hesburgh, 
with  90  unearned  doctorates.  Father 
Hesburgh,  now  65,  got  the  90th  from 
Michigan's  Kalamazoo  College  this 

President  Herbert  Hoover 

A  new  face  in  the  hall  of  fame. 

year.  The  old  champion  in  the  kudos 
sweepstakes  was  the  late  President 
Herbert  Hoover,  who  had  garnered  89 
honorary  degrees  before  his  death,  at 
90,  in  1964. 

It  is  more  blessed  . . . 

Ronald  Reagan's  call  for  more  corpo- 
rate giving  has  produced  a  windfall  for 
at  least  one  nonprofit  group,  the  Na- 
ture Conservancy.  The  organization, 
which  acquires  land  for  preservation 
(nearly  2  million  acres  of  salt 
marshes,  forests  and  the  like  in  20 
years),  got  $3  million  in  corporate 
cash  in  1981,  a  70%  increase  for  the 

year.  That  beats  even  the  50%  com- 
pound growth  rate  the  Conservancy 
enjoyed  from  1975  to  1981.  "Corpora- 
tions typically  sat  down  and  took  a 
new  look  at  social  responsibility  be- 
cause of  the  President's  programs," 
says  the  Conservancy's  president, 
William  Blair  Jr.  "It's  no  longer  just 
Exxon  and  the  big  guys  that  support 
us,"  Blair  says,  "and  the  per  capita 
corporate  gift  is  increasing."  One  ex- 
ample of  the  new  largess  came  to  the 
Conservancy  in  California,  where 
Hewlett-Packard's  David  Packard  and 
Tom  Wilcox,  chairman  of  Crocker 
National  Bank,  set  out  two  years  ago 
to  raise  $15  million  to  preserve  and 
maintain  endangered  environments. 
Since  fundraising  began  in  1980 — 
about  the  time  of  the  Reagan  appeal — 
corporations  have  pledged  more  than 
$9  million,  and  seven  tracts  have  been 
purchased.  But  the  Reagan  plan  cuts 
two  ways.  "Government  agencies 
used  to  ask  us  to  buy  land  before  they 
had  the  appropriations,  with  the  idea 
that  they  would  eventually  take  title 
and  return  our  cost,"  Blair  says.  "We 
have  bought  millions  of  dollars' 
worth  of  land  for  the  federal  govern- 
ment. But  many  agencies  have  frozen 
spending,  so  we  are  holding  the  land, 
and,  in  effect,  lending  Uncle  Sam 

If  it  ain't  broke,  don't  fix  it 

Car  owners  are  paying  less  and  less 
attention  to  manufacturers'  recall  no- 
tices. Only  one  in  two  now  bothers  to 
have  the  car  checked,  according  to  a 
new  study  by  the  General  Accounting 
Office,  the  Congressional  bird  dog.  In 
1974,  when  Congress  passed  legisla- 
tion to  increase  response,  three  out  of 
four  owners  were  taking  action  on 
recalls.  The  report  blames  the  lack  of 
interest  on  two  factors,  a  general  ho- 
hum  attitude  toward  the  notices  (128 
million  vehicles  have  been  recalled 
for  safety  defects  since  1966)  and  diffi- 
culties decoding  just  what  the  recall 
letter  means.  After  looking  over  1 1 
letters  from  foreign  and  U.S.  auto- 
makers, GAO  investigators  found 
their  reading  level  ranged  from  high- 
school  senior  to  college  senior,  while 
54% '  of  American  adults  read  at  or 
below  the  llth-grade  level.  (Instruc- 
tions for  the  IRS  Form  1040  are  at 
grade  10,  the  Ladies  Home  Journal  at 
grade  7.)  The  GAO  had  a  consultant 
work  the  reading  level  down  to  fifth 
grade  by  making  such  changes  as 
"touch"  for  "come  in  contact  with," 
"safety  defect"  for  "a  defect  which 
relates  to  motor  vehicle  safety"  and 
"free"  for  "at  no  charge  to  you." 


FORBES,  OCTOBER  11,  1982 



When  you  lease  from  Hertz  you  get  something  no  other 
leasing  company  can  offer  you:  Hertz  experience. 

We  can  lease  you  any  make,  any  model  and  any  number  of 
cars.  (We'll  send  you  all  the  up  to  date  model  specifications  in 
our  free  '83  Fleet  Guide.)  And  no  matter  what  your  leasing 
needs  are  you'll  find  Hertz  has  a  plan  to  meet  them. 

So  fill  in  the  coupon         ij^m  ^\ 
below  and  get  the  same  \S£Uf 
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helping  yOU  manage  yOUrS.     Hertz  leases  Fords  and  other  tine  cars. 


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Fleet  Guide  fill  in  this  coupon  and  mail  to: 

Mr.  Austin  McBride 
Hertz  Car  Leasing 

3  Entin  Road,  Parsippany,  N.J.  07054 


Title  \ 


City  State  Zip. 

Fleet  size  


(g;  REG  U  S  PAT  OFF  ©  HERTZ  SYSTEM  INC  1982 

Y)u  don't  ship  packages. 
You  ship  your  word,  your  credit  and  your  reputation. 
Our  small-package  express  service 
understands  that. 

You  can't  deliver  that  shipment  yourself.  You  have  to  give  the 
responsibility  to  somebody  else. 

But  if  it  doesn't  get  there  as  promised,  you  know  who  has  to 
take  the  heat.  The  man  with  his  name  on  the  door— and  his  integrity 
on  the  line. 

Burlington  Air  Express  can  help  protect  you  against  that  risk. 

We've  built  our  company  on  one  simple  principle:  "People, 
not  planes,  deliver."  People  who  aren't  stopped  by  bad  weather, 
grounded  planes,  stalled  trucks,  or  sputtering  systems.  Ingenius 
people.  Dedicated  people.  Responsible  people.  Proud  people. 

Next  time  you  have  need  to  deliver  on  your  promises,  entrust 
them  to  Burlington  Air  Express. 

You  couldn't  do  better  if  you  delivered  them  yourself. 

For  Burlington  Air  Express 
service  nationwide  or  worldwide 
call  (800)  854-7303. 
In  California,  call  (800)  432-8354. 

The  small-package  part  of 
Burlington  Northern  Air  Freight. 

People,  not  planes,  deliver. 


And  Nashville.  And  Norfolk. 
And  Nashua. 

Call  your  local  Pascoe  Builder 
for  a  free  no-obligation  consulta- 
tion. He's  in  the  Yellow  Pages 
under  "Buildings,  Hetal." 

Pascoe  builds  offices,  commercial 
buildings,  stores,  warehouses, 
factories.  Pascoe  builds  America. 


Division  of  Amcord.  Inc. 

1301  East  Lexington  Avenue  .BR 
Pomona,  California  91766  '«gj 


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E  pluribus  unum 

The  Minneapolis-based  Northwest 
Bancorporation  (Banco)  was  "quietly 
facing  the  greatest  challenge  in  its  51- 
year  history — tightening  up  on  its  af- 
filiate banks,"  Forbes  reported  two 
years  ago  (Sept.  29,  1980).  Its  80-odd 
banks,  scattered  over  seven  states 
(Banco  had  grandfather-clause  immu- 
nity from  the  MacFadden  Act's  ban  on 
interstate  banking),  had  always  operat- 
ed freely  with  only  guidelines  from 
their  parent.  The  bank  had  also  just 
weathered  a  management  crisis  precip- 
itated by  the  accidental  death  of  its 
president  two  years  earlier.  His  succes- 
sor, 62-year-old  Chester  Lind,  had  been 
catapulted  into  the  job,  which  he  never 
expected.  Understandably,  he  concen- 
trated on  setting  up  a  surer  line  of 
succession  before  stepping  aside  last 
October  (remaining  as  a  director  and 
chairman  of  the  executive  committee). 
The  new  chairman,  John  Morrison, 
tackled  the  challenge  Forbes  had  been 
concerned  about  and  has  just  complet- 
ed restructuring  Banco  with  new  offi- 
cers, new  chains  of  command  and  even 
a  new  name. 

Morrison's  tack  was  E  pluribus 
unum.  "We  don't  feel,"  he  explains, 
"that  we  can  meet  the  competition 
we're  going  to  have  from  the  larger 
money  banks  if  we  ask  each  of  our  86 
separate  banks  to  compete.  So  we're 
trying  to  provide  a  mechanism  to  act 
as  one  $16  billion  organization."  To 
do  that,  most  of  the  four-score  affili- 
ates will  be  grouped  into  eight  regions 
reporting  to  corporate  vice  chairmen. 
Senior  vice  presidents  for  finance,  ag- 
riculture, consumer  and  commercial 
banking  will  give  the  banks  strategic 
direction  in  their  broad  market  seg- 
ments. Morrison  (formerly  vice  chair- 
man) sees  his  main  rivals  as  "about  12 
banks,"  such  as  Continental  Illinois, 
Bank  of  America  and  Citicorp.  With 
the  new  setup,  he  says,  he  is  not  "too 
concerned  about  that  competition." 

Banco  is  also  expanding  its  non- 
banking  functions,  like  venture  cap- 
ital and  commercial  finance,  which 
accounted  for  about  10%  of  its  earn- 
ings last  year.  Late  last  month  it  laid 
out  $252  million  to  acquire  Iowa's 
Dial  Corp.,  a  $1  billion  consumer- 
loan  operation.  With  467  offices  in  38 
states,  Morrison  says,  Dial  "is  one  of 
the  largest  independent  consumer  fi- 
nance operations  and,  in  our  opinion, 
one  of  the  best." 

To  top  off  the  remodeling,  Morrison 
has  also  decided  to  rename  the  institu- 
tion that  has  been  banker  to  the  Paul 

Banco  'sjohn  Morrison 

New  look  for  Paul  Bunyan's  bank. 

Bunyan  country  for  half  a  century.  "We 
have  about  30  banks  called  First  Na- 
tional of  Something,"  he  says.  "We 
have  about  30  banks  with  the  North- 
western name  in  them.  We  give  a  scat- 
tered presence  to  customers."  So  next 
spring  Banco  will  become  Norwest 
Corp.,  an  identity  Morrison  hopes  will 
allow  it  "to  assert  a  much  stronger 
presence  in  the  marketplace."  In  dol- 
lars-and-cents  terms,  he  adds,  "it  will 
also  simplify  the  organization's  inter- 
nal practices  and  procedures,  resulting 
in  significant  cost  savings." 

Ben  Graham  with  a  twist 

Four  years  ago,  when  their  Rochester, 
N.Y.  investment  firm  was  nine  years 
old,  money  men  William  Manning 
and  William  Napier  were  beating  the 
Standard  &  Poor's  500  by  16%.  With 
an  8.9%  average  return  on  their  equi- 
ties, they  ranked  in  the  top  2%  of  the 
Becker  Securities'  funds  evaluation 
index  (Forbes,  Apr.  3,  1978).  Manning, 
a  Merrill  Lynch  veteran  and  Napier,  of 
Rochester's  John  J.  DeGolyer,  had  set 
out  with  $50,000  capital  in  1969  to 
beat  the  big-time  money  managers 
with'  a  system  Forbes  called  "Ben 
Graham  with  a  twist."  The  twist  was 
that  instead  of  studying  one  com- 
pany's balance  sheet,  M&N  ran  a 
whole  industry's  numbers  through 
the  computer  to  determine  supply 
conditions  and  that  industry's  ability 
to  raise  debt  or  equity  capital.  Their 
contrarian  theory  was  that  if  demand 
increased  where  there  wasn't  capacity 
to  meet  it,  earnings  would  be  forced 
higher.  It  had  worked  well  for  Man- 


FORBES,  OCTOBER  11,  1982 


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Need  a  large  drawing  brought 
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Two  reduction  modes,  75%  and  64%, 
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.  In  addition  to  general  office  use, 
it's  a  boon  to  architects,  law  firms, 
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The  Canon  NP-400F  makes  it  as  simple 
as  copying  an  ordinary  original. 

Canon  makes  it  very  simple  for 
you  with  its  Document  Feeder. 
No  more  raising  the  cover  or  positioning 
the  original.  Just  slip  in  the  original  and 
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Forget  about  tedious  hand  collating. 
The  NP-400F's  optional  15-bin  sorter 
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A  real  efficiency  booster  for  high  volume 



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Nil  I 

C  1982  U  S  Shoe  Corporation 

1250  Broadway  New  York  NY 

'Our  company  owns  a  condominium 
at  the  Essex  House...." 

...  So  say  nearly  100  corpora- 
tions who  have  discovered  the 
savings  and  efficiency  inherent 
in  corporate  condominium  own- 
ership. Superb  Central  Park 
South  location,  private  reser- 
vation system  and  international 
service  staff,  assured  availability 


of  preferred  rooms  and  meeting 
facilities,  Marriott  management 
expertise.  A  most  attractive  alter- 
native to  the  escalating  costs  of 
leasing  and  transient  rental 
in  New  York.  Furnished  models 
from  $250,000.  By  appointment. 



160  Central  Park  South 
New  York.  New  York  10011) 
Telex  12-5205 


ning  and  Napier  but  Forbes  still  cau- 
tioned that  "rock  stars  have  longer 
careers  than  most  stock  market 

M&N's  star,  however,  has  stayed 
bright.  In  1978,  Manning  &  Napier 
managed  $120  million;  today  it  has 
$575  million  in  assets  under  manage- 
ment (80%  in  institutional  funds)  and 
a  43%  annual  compounded  growth 
rate.  Returns  have  also  remained 
high,  with  gains  even  in  the  down 
years.  In  spite  of  the  market  debacles 
of  last  year  and  early  1982,  Manning 
&  Napier's  equity  returns  from  1978 
through  June  1982  were  14%,  vs.  9% 
for  the  Standard  &  Poor's  500.  Long 
term,  M&N  did  even  better,  ranking 
in  the  top  1%  on  Becker's  equity 
charts  for  the  last  six  years. 

The  M&N  strategies  have  remained 
the  same.  "Looking  at  the  balance 
sheets  of  industries  kept  us  out  of  oils 
and  high-tech  stocks  in  1981,"  Man- 
ning says.  Instead,  he  looked  for  com- 
panies that  would  benefit  from  a  fall 
in  oil  prices,  and  his  picks  for  1981 
included  Firestone,  B.F.  Goodrich, 
Monsanto  and  Union  Carbide.  But  he 
also  got  in  and  out  of  the  market  last 
year.  "At  800,  the  market  competes 
on  an  underlying  assets  basis,  and  you 
don't  have  to  have  any  earnings,"  says 
Manning.  "But  over  900,  people  were 
trading  on  earnings,  and  we'd  sell  out 
again.  We  bought  on  assets  and  sold 
on  earnings." 

At  present,  Manning  is  using  his 
industry  balance  sheets  to  find  the 
"low  cost  producers"  in  cyclical 
stocks,  Bethlehem  Steel,  B.F.  Good- 
rich in  polyvinyl  chloride  and  Cela- 
nese  in  fibers.  "Because  of  the  strong 
dollar  and  foreign  competition,"  he 
says,  "you'll  see  more  bankruptcies  in 
the  cyclical  areas.  But  when  things 
turn  around,  the  remaining  low-cost 
producers  will  pick  up  market  share 
and  the  leverage  will  be  enormous." 
Manning  plans  to  sell  before  the  com- 
panies begin  making  enough  for  their 
industries  to  again  expand. 

While  using  cyclical  stocks  as  an 
inflation  hedge,  Manning  holds  a 
50%  position  in  government  bonds 
against  deflation  and  recession.  He  is 
buying  government  bonds  with  cou- 
pons greater  than  the  rate  of  infla- 
tion and  cyclical  stocks  at  levels  "sc 
far  below  replacement  value  thai 
they  looked  like  the  perfect  hedge.' 
Says  Manning,  "You  are  not  sup- 
posed to  be  able  to  avoid  risk  with- 
out paying  the  insurance  premium 
but  I  think  we  did." 

FORBES,  OCTOBER  11,  1982 



WlWIh  ■  ■  ■  ■ 


QANTEL®  hardware  and  software  pack- 
ges  work  very  hard  for  thousands  of  very 
•ugh  customers. 

Like  production  managers  who  use  our 
anufacturing  package  to  help  them  plan 
sources  wisely.  Like  transit  managers  who 
icked  up  our  transit  package  to  keep 
jses  running  profitably.  Like  shoe  retailers 
ho  tried  on  our  footwear  package  and 
und  it  to  fit  perfectly. 

And  like  10  N.F.L.  teams  who  drafted  our 
o  sports  club  package  to  help  get  to  the 
iper  Bowl.  Last  season,  the  49ers  and  Ben- 
3ls  were  two  of  those  teams. 

Point  is,  no  matter  which  tough  business 
>u're  in,  chances  are,  we  can  solve  your 
ugh  problems.  For  a  lot  less  money  than 
would  cost  to  develop  similar  solutions 
>m  scratch! 

Investigate  the  package  we've  devel- 
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a  Mohawk  Data  Sciences  Company 


I'm  a  tough  customer;  convince  me. 




.  State: 


Send  to:  QANTEL,  4142  Point  Eden  Way,  Box  351 7.  Hayward  CA  94545 
TWX:  910-383-0249  Toll  Free:  (800)  227-1894  In  California:  (415)  887-7777 

©1982.  MDSQantel,  Inc. 

Were  the  worlds  biggest 
small  appliance  company  because 
were  mothers  little  helper. 



Dur  remarkable  work-saving 
itchen  appliances  can  be 
Dund  almost  anywhere  in 
he  world  today.  Our  food 
processors,  toasters,  blenders, 
ypans  and  other  electrical 
lelpers  are  being  used  in  kitch- 
ens of  virtually  every  descrip- 
on  to  prepare  virtually  any 
neal  imaginable. 

Meeting  special  needs  for 
abor-saving  kitchen  help  has 
nade  us  the  world's  biggest 
mall  appliance 
ompany.  ^" 

le  most  popular 
beer  worldwide 
ice  1930,  the 
>w  features 
■  iectronic  controls 
id  has  20%  more 
>wer  than 
evious  models. 

\nd  our  famous 
•rands  are  providing  consumers 
/ith  utilitarian  products  for  their 
kitchen  of  the  future." 
It  would  be  hard  to  find  a 
lodern  kitchen  that  does  not 
filize  some  appliance  made 
y  Sunbeam  or  Oster,  both 
Jlegheny  International 

ite-of-the-art  kitchen  help,  like  this 
. ter  Kitchen  Center,  can  be  found  in 
chens  around  the  globe. 

Sold  in  more 
than  50  countries, 
Osterizer  blenders 
hold  the  number- 
one  market  position 
in  the  world. 

Their  products 
nclude  Sunbeam 
lixmaster  mixers,  toasters,  food 
processors,  electric  frypans, 
Osterizer  blenders  and  Oster 
Kitchen  Centers. 

Sunbeam  consumer  prod- 
ucts dominate  European  mar- 
kets with  kitchen  appliances 
from  Rima  and  Rowenta.  Their 
names  are  as  well  known  in 
overseas  markets  as  Sunbeam 
and  Oster  are  in  America. 
In  Australia,  from  5  to  6 
Sunbeam  products  can  be 
found  in  the  average  household. 

Sunbeam  frypans  are  number  one  in 
America,  the  United  Kingdom, 
Australia,  and  around  the  world. 

And  innovative  products  like 
self-sharpening  knives  and 
scissors  trom  Wilkinson  Sword, 
another  Allegheny  International 
company  are  quickly  gaining 
acceptance  in  American  and 
European  kitchens. 

At  Allegheny  International, 
we  believe  that  applying  spe- 
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meet  special 

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ics, safety  and  protection,  and 
consumer  products. 

That's  what  makes  Allegheny 
International  so  special. 

For  information,  write  to  us  at 
Box  456W;  Two  Oliver  Plaza, 
Pittsburgh,  PA  1 5230. 

Readers  Say 

The  Forbes  Four  Hundred 

Sir:  The  Forbes  Four  Hundred  (Sept. 
13)  was  a  job  that  needed  to  be  done. 
We  [the  other  Americans]  do  need  to 
know  who  the  richest  Americans  are 
and  something  about  how  they  got 
that  way. 

— Kenneth  E.  Vandaveer 
Paso  Robles,  Calif. 

Sir:  You  speak  of  "The  enormity  of 
this  task."  Congratulations  on  having 
found  the  precise  word.  My  Webster's 
defines  "enormity"  as  1:  the  quality 
or  state  of  exceeding  a  measure  or  rule 
or  of  being  immoderate,  monstrous  or 
outrageous;  2:  a  grave  offense  against 
order,  right  or  decency. 
— Iri'ing  Reich 
San  Diego,  Calif. 

Sir:  Serves  no  useful  business  purpose 
whatsoever,  but  it  will  add  to  the  list 
of  targets  for  nuts. 

— -J.E.  Murrhee 
Gretna,  La. 

Sir:  A  classic  case  for  support  of  cap- 
italism. If  the  wealth  of  this  elite 
group  (approximately  $135.5  billion) 
were  divided  among  the  rest  of  the 
population,  each  person  would  re- 
ceive roughly  $600.  Probably  each  of 
us  could  use  an  extra  check,  but  we 
might  encounter  difficulty  finding 
anything  worth  spending  it  on.  Gone 
would  be  most  of  the  consumables, 
durables  and  even  real  estate  markets 
that  we  have  become  accustomed  to. 
— Fletcher  A.  Birmingham 
"a  contender" 
Columbia,  Md. 

Sir:  The  total  wealth  of  the  Four  Hun- 
dred equates  to  about  50  days  of  ex- 
penditures of  the  federal  government. 

— -James  E.  Wickersham 
Piedmont,  Calif. 

i  Sir:  A  literary  Edsel  .  .  .  has  appeal 
lonly  to  "financial  voyeurs." 
I — Thomas  F.  Delaney 
fWest  Hartford,  Conn. 

iSir:  People  are  wealthy.  It  is  pastries 
;that  are  rich. 

| — -John  Starrs 

Vice  President  and  Director  of  Marketing 
First  Interstate  Bank  of  California 
Los  Angeles,  Calif. 

Sir:  After  a  lifetime  of  observing  those 
with  wealth,  it  is  not  unreasonable  to 
say  that  money  doesn't  care  who 
'holds  it;  it  is  not  discriminating. 

Stringing  a  few  cliches  together,  I 
think  it  fair  to  say  that  good  character 
is  necessary  for  the  proper  steward- 
ship of  great  wealth;  support  of  others 
should  be  in  keeping  with  your  own 
good  fortune  in  life — and  finally,  pigs 
ultimately  wind  up  in  the  slaughter 
house.  My  compliments  to  you  for 
your  effective  essay  on  page  170. 
— Walter  Annenberg 
Radnor,  Penna. 

Sir:  As  secretary  of  Yale  1931,  I  am 
making  note  in  our  periodic  publica- 
tion that  three  of  our  classmates  made 
your  Rich  List:  Tom  Evans,  Jack 
Heinz  and  Gay  Donnelley.  One  com- 
ment: All  of  these  were  very  generous 
in  our  record-breaking  $2  million 
Alumni  Fund  contribution  at  our 
50th  Reunion. 
— C.  Colbum  Hardy 
West  Palm  Beach,  Fla. 

Sir:  You  don't  have  to  have  any  mon- 
ey in  the  bank  to  be  greedy.  A  parish- 
ioner once  said  to  me,  referring  to  the 
richest  man  in  the  parish,  "If  I  had  his 
money,  I'd  underwrite  the  church 
debt."  We  all  can  afford  to  be  generous 
with  another  man's  money,  just  like 
it's  fun  to  confess  our  neighbor's  sins. 
— The  Reverend  William  A.  Guenther 
Rosemont,  Penna. 

Sir:  The  400 — Congratulations! 

— Paige  Rense 
Editor- in -Chief 

Architectural  Digest  and  GEO 

Los  Angeles,  Calif. 

Remember  Prohibition? 

Sir:  You  support  using  the  Coast 
Guard  to  fight  drug  smuggling  (Fact 

and  Comment,  Aug.  30).  Were  you 
aware  that  the  "unmitigated  evil"  the 
military  is  going  after  is  marijuana? 
Marijuana  is  not  addictive  or  lethal. 
You  just  endorsed  a  move  that's  guar- 
anteed to  have  one  effect:  increase 
domestic  cultivation  and  raise  the 
price  to  make  the  black  market  even 
more  attractive  to  distributors. 
— Paul  H.  Kuhn  Jr. 
Chicago,  III 

No  dodging  these 

Sir:  In  registering  18-year-olds  for  a 
possible  draft,  you  state,  in  part,  "Giv- 
en these  simple  requirements  [provid- 
ing draft  number  when  applying  for 
driver's  license,  employment,  Social 
Security  card,  etc.]  very  few  would 
continue  not  to  comply"  (Fact  and 
Comment,  Sept.  13). 

You  don't  have  to  be  18  to  get  a 
driver's  license,  be  employed  or  have  a 
Social  Security  card. 
—John  L.  Brungardt 
Rancho  Cordova,  Calif. 

No  problem.  Computers  could  be  pro- 
grammed not  to  renew  your  driver's  li- 
cense after  age  18  unless  you  hai  >e  sent  in 
your  draft  registration  number.  Your  em- 
ployer has  your  birtbdate  and  would  be 
required  to  get  your  number  after  you 
turn  18.  Your  Social  Security  card  would 
become  invalid  when  you  became  18 
and  didn't  send  in  your  number. — MSF 

Farmer's  lament:  strong  $ 

Sir:  Your  cover  story  on  American 
agriculture  (Aug.  30)  didn't  mention 
an  essential  factor  in  the  U.S.'  export 
difficulties:  a  highly  valued  U.S.  dol- 
lar. The  Administration's  overwork- 
ing of  interest  rates  as  an  economic 
tool  has  revalued  the  dollar  by  attract- 
ing capital  imports,  and  this  has 
placed  an  extreme  burden  on  our  ex- 
port abilities. 
—John  Everett  Jones 
Dewittville,  N.Y. 

We  don't  MASH  patients 

Sir:  Re  "MASH  meets  McDonald's" 
(July  19)  about  the  outpatient  surgery 
movement  in  this  country.  Surgeons 
perform  outpatient  surgery  at  [a  nor- 
mal] speed. 

The  release-in-a-matter-of-hours  is 
possible  because  the  patient  has  had  a 
less  complex  procedure,  is  basically 

FORBES,  OCTOBER  11,  1982 




Wang  is  the  leader 
in  office  automation. 

To  limit  yourself 
to  the  same  old  computer 
company  could  be 
a  giant  mistake^ 

In  the  evolving  office  environment,  yesterday's 
solutions  no  longer  solve  today's  problems.  People 
need  something  more  than  isolated  office  machines 
and  terminals  driven  by  mammoth  mainframes. 

Office  automation  offers  the  answer. 

Yet  curiously  only  one  computer  company  really  offers  office  automation.  And  that's  Wang. 

Today,  only  Wang  has  the  systems,  the  technology  and  the  worldwide  resources  to  handle  all  the 
forms  of  information  you  need  to  manage:  words,  numbers,  images,  voice. 

So  talk  to  the  old  guard  if  you  must.  But  if  you're  serious  about  office  automation,  don't  make  the 
mistake  of  not  talking  to  the  leader.  Wang. 

For  a  presentation  on  Wang  office  automation,  call  1-800-225-0643  (in  Massachusetts  call 
1-617-459-5000,  ext.  5711).  Or  write  to  Wang  Laboratories,  Inc.,  Business  Executive  Center, 
One  Industrial  Avenue,  Lowell,  MA  01851. 


The  Office  Automation  Computer  Company' 

A427  ©1982  Wang  Laboratories.  Inc. 

Readers  Say 

healthy  and  is  willing  to  take  respon- 
sibility for  home  recovery.  Lowered 
costs  also  result  from  the  elimination 
of  overnight  hospital  stays  and  [un- 
necessary] tests  that  aren't  always 
necessary  for  simpler  procedures. 

The  movement  began,  not  to  ac- 
commodate a  fast-paced  society  ad- 
dicted to  fast-food  emporiums  and  the 
like,  but  as  a  way  to  fight  ever-escalat- 
ing medical  costs. 
— Richard  R.  D'Antoni 
Senior  Vice  President, 
Medical  21  Corp. 
Houston,  Tex. 

Flushed  with  attention 

Sir:  Re  your  criticism  of  that  Kohler 
ad  (Fact  and  Comment,  Sept.  13).  A  toi- 
let in  the  middle  of  the  road  certainly 
is  absurd  (with  or  without  a  lovely 
woman).  A  number  of  truckers  have 
actually  written  to  point  out  that 
such  installations  will  definitely 
cause  accidents. 

This  Kohler  campaign  ranks  as  the 
best  ever  in  attracting  readership,  and 
the  greatest  sin  in  advertising  is  to  be 
ignored.  Thanks  for  noticing  us. 
— EL  Nelson 
Men lagei >ie?it  Superi 'isor, 
Kohler  Account 
Camphell-Mithnn,  Inc. 
Minneapolis,  Minn. 

Food  warning 

Sir:  Thanks  very  much  for  warning 
me  away  from  Joyce's  and  The  As- 
sembly (Fact  and  Comment,  Aug.  30). 
Like  you,  I  had  seen  the  ads  in  the  New 
York  Times  and  thought  that  anybody 
that  interested  in  quality  food  would 
cook  it  correctly. 
— Dennis  Lean1 
New  York,  NY. 

Smaller  gain 

Sir:  Houston  Natural  Gas  is  listed  in 
|i  "Games  companies  play"  (Aug.  30)  as 
I  having  added  earnings  as  a  result  of  an 
li  exchange  of  common  stock  for  sink- 
I  ing  fund  debentures  of  $13.9  million. 
Actually  that  number  represents  the 
entire  exchange,  not  the  net  gain, 
which  was  $4.3  million. 
\  — Dai  'e  Keith 

i  Vice  President,  Corp.  Communications, 
\  Houston  Natural  Gas  Corp 
Houston,  Tex. 

The  Royal  Orleans.  In  a  city  of  fine  hotels,  only  one  is 
absolute  luxury  in  the  heart  of  the  French  Quarter. 


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and  Park  Lane,  London.  For  reservations  call  your  travel  agent  or  800-228-2121. 

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(Please  Print) 

Address  - 





:ORBES.  OCTOBER  11.  1982 


Experience  the  difference 
quality  makes... 

in  fashion  that  suits  your  personal  style,  in  enduring  fabrics  chosen  to  enhance  that  style, 
in  tailoring  that  insures  the  comfort  and  long  enjoyment  of  a  perfect  fit.' 

Hart  Schaffner  &  Marx  makes  the  quality  difference  in 
suits  for  the  business  or  professional  man. 

101  North  Wacker  Drive,  Chicago,  Illinois  60606 


&  Marx 

"With  all  thy  getting  get  understanding" 

Fact  and  Comment 

By  Malcolm  S.  Forbes,  Editor-in-Chief 


Washington  pundits  (who  have  to  do  it  regularly  even 
hen  there's  not  much  to  pundit  about)  went  into  orgy 

peculating  about  the  "collapse"  of  President  Reagan's 
out  in  Congress  when  House  and  Senate  overrode  his 

eto  of  that  $14  billion  appropriations  bill. 
The  override  had  a  distinct  message,  and  it  had  noth- 

lg  to  do  with  the  President's  overall  congressional  sup- 

Drt  on  major  policies.  This  supplemental  appropriations 
11  wasn't  a  budget  buster.  In  fact,  it  called  for  $2  billion 
ss  spending.  What  it  did  do  was  redirect  some  of  that 


Congressmen  and  Senators  were  fresh  back  from  their 
bbor  Day  recess  and  constituent  pulse-taking  when  vot- 
4g  on  the  veto.  Their  reading  is  similar  to  what  lots  of  us 

have  been  writing:  The  American  people  support  strong 
defense  but  will  not  support  spending  unascertainable 
additional  $bilhons  for  every  system  and  every  thing  that 
every  Braided  Cap  has  asked  for  and  been  given  by  Secre- 
tary of  Spending  Weinberger. 

Righting  tax  wrongs  won't  bring  in  anything  like 
enough  revenue  to  make  a  dent  in  the  projected  breathtak- 
ing federal  deficit.  Sufficient  additional  taxes  to  make  a 
dent  would  smother  incentive,  retard  recovery — be  totally 
counterproductive.  Entitlements  and  defense  have  to  be 
tackled.  Hard  choices  in  defense  must  be  made. 

If  the  Secretary  wants  to  be  Mr.  Nice  Guy,  either  the 
President  or  someone  else  has  to  make  the  hard  choices 
that  the  people,  the  Congress  and  common  sense  require. 


used  to  be  criticized  for  being  too  conservative? 


that  present  skirmishes  over  world  trade  might  turn  again,  and  if  it  does,  there  will  be  no  winners, 
ito  all-out  conflict.  The  Hawley-Smoot  Tariff  Act  of       Secretary  of  State  George  Shultz'  long  background  in 

5>30  contributed  immeasurably  to  turning  America's  economics,  in  business,  as  former  Labor  Secretary  and 

ock  market  panic  into  a  devastating  worldwide  depres-  Treasury  Secretary  ensures  an  intelligent  approach  to  eas- 

)n.  Protectionism  threatens  to  become  rampant  once  ing  the  burdens  that  threaten  to  ignite  a  world  trade  war. 


Statesmanship's  not  something  many  consider  one  of 
le  House  leader's  outstanding  attributes.  But,  begorrah, 
lanks  to  Speaker  O'Neill's  unleavened  exercise  of  it, 
esident  Reagan's  essential  tax  reform  measure  was 
issed  by  the  Democratic-controlled  House. 

Incidentally,  on  the  same  bill  in  the  Senate,  Senator 
Teddy,  too,  measured  up  by  standing  up  for  it. 

To  the  contrary,  while  Jack  Kemp  made  firmer  the 
friends  he  already  had,  he  moved  further  into  right  field, 
further  from  home  plate — the  White  House. 

\U  L  !  l  II 


Bill  Palcy,  who  built  CBS  from  nothing  to  a  consequence 
in  major  measure  unequaled,  is, one  of  the  best  things  that 
ever  happened  to  radio  and  TV.  He  stamped  CBS  with  his 
own  character — quality,  daring,  determination.  He  picked 
his  way  with  genial  toughness  through  the  minefields  that 
abound  in  marketplace  and  political  arena  for  media-using 
public  airwaves. 
For  Bill,  a  young  HI,  it's  "Roger,  over" — but  not  "out." 


•  Vienna  Park— 35  East  60th  St.  (Tel:  758-1051)— is 
even  more  handsome  in  its  muted-tan  way  than  its  older 
sister  Vienna  '79,  and  its  dishes  are  as  delicious,  which  is 
very  delicious  indeed.  Traditional  Viennese  fare  is  bright- 
ened, lightened  with  imaginative  twists  and  touches.  As  we 
said  of  '79,  the  Austrian  capital  should  have  one  as  good. 

Tony  Roma's,  a  Place  for  Ribs  — 400  East  57th  St. 
(Tel:  308-0200).  The  menu  lists  most  of  the  steakhouse- 
usual,  but  here  ribs  are  it.  They're  meaty,  soft  and  soak  up 
the  tasty  sauce.  Appalling  french-fried  potatoes,  and  the 
other  stuff  less  than  good. 

•  Janice's  Fish  Place— 570  Hudson  St.  at  11th  St. 
(Tel:  243-4212).  Both  food  and  setting  are  cheerful  and 
informal  with  some  imaginative  combinations  that  work, 
i.e.,  asparagus  with  bleu  cheese  dressing,  swordfish  ten- 
yaki  and  shrimp  saturated  with  oriental  vegetables.  Open 
until  1 1  p.m.  Major  drawback:  no  cigars  allowed. 

•  The  Post  House  —28  East  63rd  St.  (Tel:  935-2888).  A 
prime  cut  above  the  usual,  plus  the  widest  and  freshest 
variety  of  seafood  in  New  York  City's  steakhouse  milieu. 
Its  raisin  white  bread  alone  is  worth  the  visit.  Only  com- 
plaint: Thickish  potato  chips  are  mislabeled  as  cottage 
fries.  Attractive  decor,  generous  portions. 

Ruelles—  321  Columbus  Ave.  (Tel:  799-5100).  Here 
the  Making-It  young  and  the  Have-It-Made  middle-aged 
(my  definition  doubtless  is  more  inclusive  than  yours) 
swarm  in  well-dressed  (or  smartly  undressed)  style  around 
the  dramatic  big  bar  inside  or  at  the  multiple  small  tables 


has  been  greater  than  it's  been  to  anything  else  that's 
appeared  in  the  magazine  in  the  past  65  years. 

From  among  The  Four  Hundred,  some  witful  responses, 
more  wrathful. 

Many  major  newspapers  headlined  their  area  Richest, 
while  TV,  radio  and  magazines  had  a  field  day  with  The 
Four  Hundred  generally.  Two  major  publishers  have  made 
proposals  for  books. 

Newsstands  sold  out,  including  25,000  extra  copies. 
In  the  Big  Apple's  Pan  Am  Building,  1,650  copies  dis- 
appeared in  a  couple  of  days,  and  we  were  unable  to 

outside.  Crisp,  colorful  crudites  are  better  than  lots  of  the 
so-so  other  dishes.  Prices  are  surprisingly  moderate.  The 
passing  sidewalk  parade  is  a  better  show  than  many  that 
charge  admission. 

•  La  Coupole— 2  Park  Ave.  (Tel:  696-0100).  This 
huge  would-be  bistro  at  the  foot  of  Park  Avenue  attract- 
ed great  attention  at  its  opening  and  later — deservedly, 
all  bad.  Service  varies  from  sporadic  to  nonexistent,  and 
none  of  the  food  we  sampled  was  worth  the  inter 
minable  wait. 

Mindy's— 212  East  42nd  St.  (Tel:  490-8900)— is  in 
the  new  Helmsley  Harley  Hotel.  It's  attractive,  spacious 
with  eager-to-please  service.  The  food's  only  a  bit  better 
though,  than  the  usual  hotel  variety.  One  sign  of  Mindy's 
unpretentiousness  vis-a-vis  its  Helmsley  Palace  counter 
part:  The  menu's  understandable. 

Tovarisch  —38  West  62nd  St.  (Tel:  757-0168).  If  Rus 
sian  cuisine's  your  bag  and  you're  attending  Lincoln  Cen 
ter,  this  place  is  for  you.  Otherwise,  otherwise. 

•  Keens— 72  West  36th  St.  (Tel:  947-3636).  This  olc 
New  York  restaurant  landmark  with  its  claypipe-stud 
ded  interior  died  five  years  ago.  It  has  now  been  resur 
rected  at  a  cost  of  $1.4  million  by  the  owners  of  One 
Fifth  and  the  Elephant  e)  Castle  restaurants,  which 
have  a  devoted  following  among  Village  young.  It's  gooc 
to  have  Keens  back,  handsomely  restored.  While  not  or 
a  par  with  Christ  Cella,  it's  all-star  compared  with  Th 
Palm  pits. 


supply  their  request  for  another  500. 

Some  comments,  when  our  researchers  were  checkin; 
(as  they  did,  or  made  many  attempts  to  do,  with  ever 
name),  are  too  good  not  to  be  shared.  Virginia  McKnigh 
Bingcr  [$100  million]:  "Isn't  that  terrible?  I  don't  reall 
know."  Leonard  Marx  ($300  million]:  "Oh,  if  you  prin 
that  my  wife  will  ask  not  to  take  in  any  more  wash 
ing!"  William  Graham  ($100  million],  land-ownin 
brother  of  Florida's  Governor:  "Your  decimal  pom 
should  be  moved  one  digit  to  the  left,  although  it  woul 
help  my  credit  if  you  left  it  where  you  put  it." 


FORBES,  OCTOBER  11.  1982 

Richard  Kleberg,  asked  to  confirm  Forbes'  initial  $720 
million  family  net-worth  estimate:  "Well,  I  just  took  out  a 
$170  million  note.  I  guess  you'll  have  to  deduct  that."  Don 
Reynolds,  on  Forbes'  estimate  of  his  $200  million  worth: 
"There  are  only  three  ways  to  determine  what  you're 
worth.  You  can  go  broke  and  the  bankruptcy  court  will  tell 
you,  or  the  IRS  can  tell  you  or  you  can  sell  out.  I'm  not 
planning  to  do  any  of  the  three." 

Wrote  Clinton  Laird  about  our  estimate  of  his  Delaware 
clan's  du  Pont-related  wealth  of  $400  million:  "A  personal 
canvass  of  our  family  holdings  comes  up  $  1 50  million  short 
of  your  estimate,  but  don't  worry,  I'll  get  to  the  bottom  of 
this.  Those  pikers  can't  hide  nine  figures  forever!" 

The  attorney  of  one  Oklahoman  offered  to  "find  a  re- 
placement if  you'll  take  my  client's  name  off  the  list."  Bob 
Hope  [$280  million]  protested  the  inclusion  of  an  estimate 


are  usually  unrelated. 

of  his  real  estate,  "  'cause  all  I  do  is  pay  taxes  on  it.  When 
Time  magazine  said  I  was  worth  half  a  billion,  I  wired  the 
editor  and  said  if  he  could  find  it  I'd  split  it  with  him!" 

Some  Forbes  readers  joined  those  among  The  Four  Hun- 
dred in  protesting  that  the  compilation  would  make  the 
listees  targets  of  unwanted  attention  by  those  after  some 
of  their  money  in  one  way  or  another,  including  the  IRS. 

Perhaps  this  from  the  "Personals"  advertising  columns 
of  New  York's  Village  Voice  is  the  sort  of  overture  they 
had  in  mind: 

.  Is- 

re  of 

VI   oVtl  ,  w  -  .  Uu 

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Single,  serious  black  woman  seeks  one 
fabulous  Forbes  Four  Hundred  man 
Find  new  and  exciting  ways  to  spend 
money  Write  VV  BoxP5377 


'vrii«»  female, 


5' 10".  blonde, 
>«hite  male 




is  what  you'll  see. 


By  M.S.  Forbes  Jr. 

The  extraordinary  stock  market 
rally  of  recent  weeks,  coming  at  a 
time  of  deepening  world  recession 
and  a  teetering  international  bank- 
ing system,  brings  to  mind  a  state- 
ment once  made  by  John  Maynard 
Keynes  at  a  meeting  of  an  invest- 
ment trust  of  which  he  was  chair- 
man (Keynes  was  a  very  successful 
speculator):  "Nothing  is  more  suici- 
dal than  a  rational  investment  poli- 
cy in  an  irrational  world." 


Is  there  anyone  with  authority  at 
the  Pentagon  who  realizes  that  one 
important  aspect  of  an  effective  de- 
fense is  well-trained  combat  forces 
that  are  capable  of  fighting? 

Apparently  not,  to  judge  from  the 
results  of  recent  military  exercises 
carried  out  by  the  U.S.  and  some  of 
its  NATO  allies  in  Germany. 

Here  is  how  the  New  York  Times' 
longtime  and  able  military  corre- 
spondent, Drew  Middleton,  de- 
scribed this  latest  round  of  maneu- 
vers, which  involved  70,000  troops: 
"No  fixed-wing  aircraft  were  visi- 
ble. This  struck  some  observers  of 
the  operation  as  odd  because  one  of 
the  aims  of  the  exercise  is  to  prac- 
tice air-ground  operations.  .  .  . 
Overall,  the  impression  is  that  be- 
cause of  shortages  of  funds,  [this 
annual  exercise]  is  not  on  its  usual 

scale.  Military  observers  comment- 
ed that  NATO  forces  did  not  appear 
to  learn  from  past  mistakes." 

This  is  no  isolated  incident. 
Knowledgeable  sources  say  that 
most  of  our  combat  forces  are  still 
insufficiently  trained. 

Because  Defense  Secretary  Wein- 
berger refuses  to  make  choices  on 
the  services'  ever-expanding  wish 
lists,  a  budget-conscious  Congress 
will  likely  reduce  the  fighting  readi- 
ness of  our  forces  rather  than  elimi- 
nate one  of  the  new  multibillion- 
dollar  weapons  systems. 

It  would  be  no  catastrophe  for  the 
free  world,  however,  if  we  scratched 
one  or  both  of  the  proposed  new 
nuclear  aircraft  carrier  task  forces — 
which  will  cost  at  least  $12  billion 
each  and  more  than  $600  million  to 
operate  annually — and  spent  some 
of  that  money  on  more  intensive 
combat  training.  Such  a  sensible 
tradeoff,  though,  is  unlikely  as  long 
as  "Cap  the  Suitcase"  holds  the  top 
title  at  the  Pentagon. 


A  group  of  well-known  public  fig- 
ures, including  William  Simon,  ex- 
Secretary  of  State  Cyrus  Vance  and 
Commerce  Secretary  Malcolm  Bal- 
drige,  got  together  a  few  months  ago 
to  push  a  constitutional  amend- 
ment that  would  limit  the  President 
to  a  single  six-year  term. 

The  proponents  argued  that  with 

such  a  change,  our  nation's  chief 
executive  would  be  thinking  more 
about  what  was  best  for  the  national 
interest  than  about  the  next  elec- 
tion. As  one  of  these  worthies  put  it, 
"The  President  would  thereby  do  a 
better  job." 

We  are  getting  a  graphic  example 
of  how  well  this  idea  works  in  prac- 
tice with  Mexico.  A  single  six-year 
term  didn't  prevent  the  incumbent 
from  pursuing  unsound  economic 
policies.  It  didn't  stop  him  from  re- 
sponding demagogically  to  his 
country's  problems.  His  nationaliz- 
ing the  banks  was  prompted  less  by 
economic  necessity  (private  Mexi- 
can banks  were  very  responsive  to 
government  "suggestions")  than  by 
the  desire  to  do  something  grand, 
dramatic,  so  that  he  wouldn't  be 
remembered  only  as  the  man  who 
blew  Mexico's  oil  wealth. 

Closer  to  home,  would  this  coun- 
try have  preferred  a  Jimmy  Carter 
for  six  years  instead  of  four? 

Politics  is  ultimately  people.  It's 
not  unhealthy  in  a  democracy  that 
pohticos  must  occasionally  respond 
to  unwelcome  pressures. 

Our  current  system  is  not  nearly 
so  crippling,  confining,  as  some  peo- 
ple seem  to  think.  Ronald  Reagan  is 
a  forceful  reminder  that  much  can 
be  achieved  by  a  President  who 
knows  how  to  lead — and  whose  ef- 
fectiveness is  enhanced  by  the  fact 
that  he  may  run  again. 



Other  Comments 

Often  comments  by  others  stimulate,  irritate, 
abuse  or  amuse  this  editors  mind.  -MSF 

Gung  Ho 

You  know  there  has  always  been 
an  argument  over  just  which  branch 
of  the  service  is  actually  the  tough- 
est, especially  if  there  is  a  Marine  in 
the  room.  Well,  I  heard  a  story  about 
a  group  of  Marines  who  were  sent  to 
an  Army  base,  for  airborne  training. 
An  Army  lieutenant  briefed  these 
Marines  about  the  operations.  He 
told  them  they  were  to  jump  from 
their  plane  at  800  feet  and  once  they 
hit  the  ground  they  would  regroup 
and  head  north.  After  the  briefing, 
several  of  the  Marines  went  to  the 
lieutenant  and  asked  if  the  plane 
could  be  lowered  to,  maybe,  500  feet. 
The  lieutenant  explained  that  if  it 
went  any  lower  it  wouldn't  allow 
time  for  the  parachutes  to  open  .  .  . 
to  which  the  surprised  Marines  re- 
plied: "Oh,  you  mean  we'll  be  wear- 
ing parachutes?" 

— William  P.  Clark,  National 
Security  Adviser  to  the  President 

Social  Security  Reform 

Social  Security's  problems  are  not 
beyond  solution — and  can  be  fixed  in 
ways  that  will  not  injure  those  al- 
ready retired  or  soon  to  retire. 

Increase  normal  and  early  retire- 
ment ages  by  three  years.  This 
should  be  accomplished  by  edging 
them  forward  one  month  a  year  over 
the  next  36  years.  This  lengthy  peri- 
od would  mean  small  reductions  in 
benefits  for  those  getting  ready  to  re- 
tire but  place  the  normal  retirement 

age  at  68  about  the  time  the  baby- 
boom  generation  starts  to  join  the 
ranks  of  the  elderly. 

Bring  all  Civil  Service  employees 
into  Social  Security.  Those  workers 
who  are  ten  years  or  more  from  retire- 
ment could  be  brought  in  now,  the 
rest  phased  in. 

— Business  Week  editorial 

TV  News 

Those  who  get  their  news  mostly 
from  TV,  as  most  Americans  do,  end 
up  spottily  informed.  Richard  Nixon 
says  that  "television  is  to  news  what 
bumper  stickers  are  to  philosophy." 

— Thomas  Griffith,  Time 


Some  federal  judges  are  so  busy 
shooting  drug  enforcement  officers 
in  the  foot  that  they've  forgotten  the 
purpose  of  legal  rights.  The  plight  of 
Honey,  a  handsome  canine  airport 
worker,  illustrates  the  point.  Her  job 
is  to  sniff  out  nefarious  drugs  stashed 
in  luggage  by  drug  runners.  But  dogs 
are  such  good  sniffers  that  a  Califor- 
nia federal  court  recently  ruled  that 
unless  officers  had  already  nailed  the 
suspect,  dogs  couldn't  be  used.  "The 
molecules  of  contraband  emanating 
from  the  interior  of  luggage  are  so 
subtle  and  incapable  of  human  per- 
ception," ruled  the  court,  "that  a 
canine's  detection  of  them  consti- 
tutes an  intrusion  into  the  owner's 
privacy."  Lesson  one  for  Honey:  It's 

"This  is  impossible.  Let's  take  the  next  boat." 

not  fair  to  fight  drug  runners  if 
you're  going  to  win. 

A  New  York  federal  court  mean- 
while added  that  anyway  it's  illegal  to 
seize  someone's  luggage  for  the  time 
needed  to  get  all  the  papers  signed, 
even  if  drug  officers  had  overwhelm- 
ingly probable  cause  to  search.  Lesson 
two:  The  Constitution  means  Honey 
can't  be  used  because  she  causes  what 
the  court  calls  "uncertainty  and  anxi- 
ety" in  the  drug  runner. 

— Wall  Street  fournal  editorial 

New  York  is  so  full  of  liber- 
als that  you  can  get  an  argu- 
ment if  you  assert  that  there 
are  two  sexes, 

— Mort  Sahl 


An  optimist  is  a  person  who  goes  to 
a  "landmark"  restaurant  expecting 
good  food. 

— George  Lang,  in  Food  e)  Wine 

That's  Life 

Representative  Barney  Frank  of 
Massachusetts  told  the  American  Bar 
Association  [that]  some  legislators  are 
defining  life  all  the  time,  voting  not 
only  against  abortion  funding  but 
against  any  federal  aid  aimed  for  those 
who  do  get  born — aid  to  dependent 
children,  child  nutrition,  child  care, 
school  lunches,  shelters  for  battered 
kids.  As  Mr.  Frank  says,  by  their  defi- 
nition, "Life  begins  at  conception  and 
ends  at  birth." 

— New  York  Times 

Puffed  Sleeves  at  Least? 

When  a  woman's  paying  $3,000  to 
SI 5,000,  she  doesn't  want  an  ordi- 
nary, nothing  little  dress. 

— designer  James  Galanos,  in  W 

Rotten  Squares 

Most  vegetables  now  are  grown 
with  an  eye  toward  shelf  life  rather 
than  taste.  It  is  very  difficult  to  find  a 
tomato  that  doesn't  have  the  consis- 
tency of  a  billiard  ball.  It's  a  shame.  It 
used  to  be  if  you  heard  a  particularly 
windy  politician  you  could  fling  a  to- 
mato at  him.  It  was  an  old  American 
tradition.  Now  if  you  threw  one  of  the 
tomatoes  available  in  most  grocery 
stores  at  a  politician,  you  might  get 
arrested  for  assault  with  intent  to  kill. 

— author  Calvin  Trillin 


FORBES,  OCTOBER  11,  1982 

Are  uncoordinated  assets 
robbing  your  money  and  time? 

(\  new  kind  of  account  gives  you 
higher  earnings  and  more  time: 
Dean  Witter's  Active  Assets  Account. 

Far  too  many  investors  are  wasting 
ime  and  potential  earnings. 

For  example,  if  you  own  just  10 
;tocks,  you  could  deposit  as  many  as 
K)  checks  in  a  single  year  in  your 
checking  account,  where  they'd  earn 
lothing  until  reinvested. 

Some  investors  squirrel  away  rec- 
>rds  of  trades,  gains,  losses,  and 
ncome— piecemeal.  Then,  at  income 
ax  time,  they're  faced  with  hours  of 
orting  and  arithmetic. 

The  Dean  Witter  Reynolds  Active 
\ssets  Account  controls  these  prob- 

To  start,  every  day,  every  dollar 
'our  assets  have  earned  is  swept  into  a 
pecial  money  market,  government 
ecurities,  or  tax-free  fund  to  earn 
nore  dollars.  So  your  cash  never  stops 
vorking  for  you. 

A  checkbook  that  "talks" 
to  a  computer 

Your  Active  Assets  Account  gives 
ou  free  check-writing  privileges,  plus 
i  special  VISA*  card.  Use  them  to 
vrite  checks  or  make  charges  against 
our  money  fund.  You  earn  income  on 
he  float  until  the  moment  your  checks 

or  charges  are  debited. 

You  also  get  an  "Expense  Analyzer" 
that  lets  you  code  the  checks  to  fit 
any  of  20  categories,  from  charitable 
contributions,  to  household  expenses. 
Each  month  you'll  get  a  statement  that 
lists  and  describes  your  expenses. 

Tax  preparation  made  easier 

At  year  end,  you'll  also  get  a  sum- 
mary that  gives  you  a  record  of  securities 
bought  and  sold,  dividend  and  interest 
income,  and  tax-exempt  income— 
plus  a  comprehensive  list  of  the  pay- 
ments you  have  listed  as  tax-deductible. 
All  neatly  totaled  for  you. 

Automatic  loans 

Need  to  borrow  money?  You  can 
write  yourself  a  loan— without  filling 
out  a  form— simply  by  writing  a  check 
or  using  your  VISA  card. 

What's  more,  you  can  set  your  own 
repayment  schedule. 

Cash  when  you  need  it 

People  with  ordinary  checking  ac- 
counts could  be  stuck  if  they  want  to 
cash  a  check  on  weekends,  or  after 
banking  hours.  But  your  Active  Assets 

check  will  be  honored  at  Sears  full-line 
retail  stores  around  the  country,  even 
on  weekends,  and  as  late  as  9  p.m. 
in  most  cases. 

Every  day  you  do  without  an  Active 
Assets  Account  could  be  costing  you 
higher  returns.  For  more  complete 
information,  including  charges  and  ex- 
penses, send  for  our  free  booklet  and 
prospectus.  Read  it  carefully  before 
investing  or  sending  money.  Use  the 
coupon,  or  call  toll  free  any  time. 

1-800-526-7443  Ext.  247 

(In  New  Jersey,  call  800-522-4503  Ext.  247) 

Dean  Winer  Reynolds  Inc. 
Client  Information  Services 
P.  O.  Box  5013,  Clifton,  NJ  07015 

Member  SI  PC 
A28FR  10/11 

Without  obligation,  please  send  free  booklet 
about  your  Active  Assets  Account. 

\  \MI 

Al  )|  >RI  vS 





If  you  are  a  Dean  Witter  client,  please  indi- 
cate Account  Executives  name  and  office: 


This  service  is  available  only  for  individual,  joint  and  certain  types  of  trust  accounts. 

i  1982  Dean  Witter  Reynolds  Inc. 

Never  let  it  be  said  that  a  handsomely  presented  presentation 
can  substitute  for  good  content. 

But  if  you  can  have  both,  you're  surely  ahead  of 
the  game. 

Kodak  duplicators  can  dress  up  your  reports  with 
colorful  cover  sheets;  even  copy  on  them.  Your  reports 
are  collated  and  stapled  up  to  50  pages  thick. 

It  all  happens  at  duplicator  speed,  on  line, 
in  one  continuous  operation. 

May  we  demonstrate? 
Write:  Eastman  Kodak  Company,  CD2472 
Rochester,  N.Y.  14650. 

If  you've  got  the  content, 
Kodak  has  you  covered. 

What's  Ahead  for  Business 

Edited  by  Thomas  O'Donnell 


Strikes  by  railroadmen  and  pro  football  players  are  grabbing 
headlines,  but  don't  be  fooled:  Inflation-boosting  labor  settlements 
will  be  a  rarity  during  the  fourth  quarter  and  early  next  year.  Indeed,  in 
the  manufacturing  sector,  peace  will  prevail  as  strikes  become  few  and 
far  between. 

Forget  football- 
unions  are 
running  scared 

Wage  increases 
should  average 
a  modest  6% 

Consumers  have  lots 
of  credit — they  just 
won't  buy 

Contract  talks  will  be  characterized  by  concessions  from  labor 
unions,  often  to  keep  troubled  companies  afloat.  The  recent  UAW 
decision  not  to  increase  demands  on  a  revived  Chrysler  is  a  key.  Even 
at  healthy  companies,  inventories  are  still  uncomfortably  high.  That's 
a  major  reason  the  manufacturing  sector  is  operating  at  69%  of 
capacity.  Labor  leaders  are  treading  softly  because  at  many  companies 
strikes  would  be  a  welcome  way  to  cut  costs  and  reduce  inventories. 

You  can  even  expect  some  managements  to  pressure  labor  to  open 
existing  contracts  and  move  up  negotiating  dates  on  new  ones.  The 
objective  is  to  reduce  the  impact  of  mandatory  cost-of-living  increases 
that  have  become  burdensome  in  a  world  of  low  inflation  and  ongoing 
recession.  Strikes,  if  they  do  occur,  will  come  in  the  service  industries, 
which  are  comparatively  healthy.  Since  the  service  sector  is  not 
heavily  unionized,  the  impact  on  the  economy  will  be  slight. 

Not  surprisingly,  labor  leaders  are  more  realistic.  "Unions  no  longer  look 
at  what  everybody  else  gets  and  ask  for  the  same, "  says  Conference  Board 
labor  economist  Audrey  Freedman.  "Wage  imitation  is  shattering." 

For  the  remainder  of  this  year  and  early  1983,  you  can  expect 
settlements  overall  to  average  6%  or  less.  Those  lower  settlements 
mean  that  consumer  spending,  the  engine  expected  to  fuel  the  recov- 
ery, will  continue  to  sputter.  In  August  personal  income  rose  by  a 
meager  0.3%,  another  indication  that  the  recovery  won't  come  any- 
time soon.  In  July,  personal  income  rose  by  a  full  1%  because  of  the  tax 
cut  and  Social  Security  payout  boosts.  But  even  then,  consumers  failed 
to  increase  spending. 

Lack  of  money,  however,  is  not  the  problem.  Consumers  have 
strengthened  their  balance  sheets  and  are  just  too  scared  or  too  choosy 
to  spend  (seep.  238).  The  personal  savings  rate  is  now  running  at  7%; 
that's  nearly  50%  higher  than  in  recent  years.  "Consumers  are  capable 
of  taking  on  more  debt,  but  have  chosen  not  to,"  points  out  economist 
Robert  Gough  of  Data  Resources. 

Unemployment  is  the  big  fear.  If  it  goes  over  10%  later  this  year,  as 
widely  expected,  the  psychological  impact  on  those  still  working  but 
fearful  of  losing  their  jobs  will  be  devastating.  "It  will  eliminate  two  or 
three  months  of  spending  activity,"  says  Gough. 

The  good  news  that  could  change  all  this  is  a  decline  in  rates.  Because 
of  the  soft  economy,  rates  will  continue  to  fall.  The  question  is:  How 
much?  If  the  drop  isn't  significant,  Christmas  retail  sales  will  be  the 
weakest  in  years — and  the  recovery  won't  begin  until  early  1983. 


The  Forbes  Index 

Forbes  Index 

12-month  close-up 


Current  129.2 
Previous  129.3 
Percent  change  -0.1% 



'67  '    '68  '    69  '  '70   '   71    '  '72  '   '73   '  '74    '  '75    '  '76   '  '77   '    78   '    -">  '  '80   '  '81    '  '82 

i  i  i  i  i  i — r-rn — i — i — r 


Another  false  start.  After  rising  for  two  consecutive 
reporting  periods,  the  Forbes  Index  has  turned  down 
again.  And  once  more  the  reason  is  that  consumers  have 
failed  to  spend.  Consumer  credit  increased  by  only  $570 
million,  compared  with  a  $1,349  million  gain  the  pre- 
vious month.  At  the  cash  register  that  translates  into  a 
0.9%  drop  in  retail  store  sales  in  August,  following  a 

slight  rise  of  1.2%  in  July.  Consumers  were  also  paying 
back  borrowings:  Debt  liquidations  are  up  by  5.1%. 

A  look  to  the  long  term  also  reveals  negative  news. 
New  housing  starts  fell  by  13.1%.  That's  all  the  more 
disappointing  because  it  follows  a  17.6%  gain  a  month 
earlier.  The  story  is  the  same  with  industrial  production 
for  August,  which  dipped  0.5%  after  rising  0.1%  in  July. 

The  Forbes  Index  Components 

The  Forbes  Index  is  a  measure  of  U.S.  economic  activity 
composed  ot  eight  equally  weighted  elements:  Total  in- 
dustrial production,  new  claims  for  unemployment  com- 
pensation, the  cost  of  services  relative  to  all  consumer 
prices,  the  level  of  new  orders  for  durable  goods  com- 
pared with  manufacturers'  inventories,  total  retail  sales, 
new  housing  starts,  personal  income,  the  change  in  the 
amount  of  consumer  installment  debt  outstanding 

To  measure  these  eight  elements,  Forbes  monitors  1 1 
series  of  U.S.  government  data  The  last  14  months'  data 
for  each  series  is  presented  at  right. 




1    1    1    1    II    I    1    1  1 


Industrial  production  index  11967100) 
Seasonally  adjusted  IFcdcral  Reserve) 




I     I     I     I     I     I     I     I     I     I  I 

Unemployment  claims  (thousands, 
seasonally  adjusted  [Dept.  ot  Labor! 

1  1  1  1 

1    1    1     1  1 

1  T 

S   O  N  D 

F   M  A  M  I 

)  A 



Total  index 
I    I    1    1    111   1  1 



Consumer  price  indexes  1 19671001 

all  urban  consumers,  unadjusted  (Dept.  of  Labor] 






1    1    1    1    1    1    I    1  1 


New  housing  starts  thousands! 

privately  owned,  unadjusted  (Dept.  ot  Commerce) 

Manufacturers  new  orders  and  inventories 

(Sbillions!  seasonally  (Dept.  of  Commerce 


1     1     1     1     1     1     1     1  1 




Personal  income  iSbillums!  wage  and  salary  dis- 
bursements, seasonally  adiustcd  |Dcpt.  of  Commerce! 

Retail  store  sales  iSbilhunsI 

seasonally  adiustcd  (Dept.  ot  Commerce! 

Consumer  installment  credit  iSbillions! 
total,  seasonally  adjusted  (Federal  Reserve) 

~m  i — l — i — | — I  I  |  i  i — T 


I  I  I  I  I  I  I  I  I  I  I  I 


FORBES,  OCTOBER  11,  1982 

What  happens 
work  with  an 

Osborne  Personal 
Business  Computer: 

Y)u  get  more 
work  done. 

Today,  the  Osborne  1 
Personal  Business  Computer 
sells  for  $1795.  Complete. 
Including  software. 

The  Osborne  is  port- 
able, because  your  ideas  don't 
always  happen  at  the  office. 

The  Osborne  is  affordable, 
so  there's  no  reason  to  wait. 
The  Osborne  is  complete. 

Dollar  for  dollar,  no  other  com- 
puter comes  close. 

The  Osborne  is  easy  to 
learn,  fun  to  use,  and  quickly 
becomes  indispensable. 

A  visit  to  your  local 
authorized  Osborne  computer 
retailer  will  convince  you  that 
today,  more  than  ever,  how  fast 
you  go  up  depends  on  which 
buttons  you  are  pushing. 

For  your  nearest  dealer, 
call  (in  California)  800  772-3545 
ext.  905;  (outside  California)  call 
800  227-1617 
ext.  905. 


The  $1795  suggested  retail  price  for  the  Osborne  1  (a  trademark  ol  Osborne  Computer  Corporation)  includes  a  lull  business  keyboard,  built-in  CRT  display,  two  built-in  (loppy  disk  drives, 
CPU  and  64  kilobytes  of  RAM  memory,  RS-232  and  IEEE  488  interlaces,  and  the  following  software  packages  WORDSTAR*  word  processing  with  MAILMERGE*  (a  registered  trademark  of 
MicroPro  International  Corporation  ot  San  Rafael,  California);  SUPERCALC®  electronic  spreadsheet  system  (a  trademark  of  Sorcim  Corporation),  CBASIC®  (a  registered  trademark  of  Compiler 
Systems),  MBASIC*  (a  registered  trademark  of  Microsoft),  and  CP/M*  (a  registered  trademark  of  Digital  Research) 



European  performance 
and  handling. 

The  new  Renault  Alliance  DL. 
Powered  by  an  aluminum  head 
1.4  litre  engine  with  Bendix  single 
point  fuel  injection.  An  on  board 
computer  monitors  fuel  feed  to 
provide  precise  response  through  five 
superbly  ratioed  gears. 

Alliance  DL.  Front  wheel  drive 
from  the  world's 
all  time  leader  in 
front  wheel  drive. 
And  an  integrated 
group  of 
road -holding 
components.  Of 
course  there's 
McPherson  front 
suspension  and  rack 
and  pinion  steering. 
But  also  an  entirely 
new  twin  axial 
torsion  bar/trailing 
arm  rear  suspension 
that's  more 

than  leaf  springs  or  coils.  Fore  and  aft 
stabilizer  bars  and  steel -belted  radials 
are  also  standard. 


Alliance  DL. 
Nearly  one  and  a 
half  million  hours 
of  development 
and  testing  and  over 
$200  million  invested  in  American 
Motors'  Kenosha  assembly  plant 
have  produced  a  sophisticated 
small  sedan  of  European  breeding 
and  American  manufacture. 

Renault  has  employed 
computers  extensively 

the  design  process.  First,  finite 
element  analysis  improves  the 
structural  integrity  and  helps  part- 
weight.  Then  a  UNISURF  (uniform 
surface)  computer  probe  a 
the  specifications  of  the 
design  model  and 
them— wit] 
a  tenth  of  I 
directly  to  the  die  that 
produces  the  Alliance  body  parts. 
Finally,  the  computer-controlled,  I 
automated  Gilman  assemblv  pr<  >q 
assures  precise  and  consistent  hoc 

the  first  Alliance  to  the  100,000th. 
The  result  of  all  this  technology  is 
'ited  car  that  looks  as  good  in  the 
I  tunnel  (.39Cx)  as  it  does  on  the 
.  How  good  is  that?  Good  enough 
le  European  version  of  the 
ice  to  win  Europe's  1982  Car  of 
ear  award. 

'er  appeal  and  room  for  five. 

ice  DL.  Proof- positive  of 
ult's  passion  for  ergonomics, 
bio- formed  bucket  seats  on 
?d  tracks  to  tilt  and  recline  in 
I  new  ways.  An  instrument 
~>  whose  every  element  is  in  easy 
[.  And  laser-calibrated  lines  of 
for  improved  visibility. 
\  driver's  car,  yes.  But  sensitive 
ssengers  as  well.  The 
ace  comfortably  seats 
vvith  extra  hip  and  leg 
i  provided  by  a 
-hed  wheelbase 
ie  added  room 
r  the 
stal  front 


there's  separate  rear  seat  heating,  so 
the  people  in  back  can  enjoy  the 
Alliance  as  much  as  you  do. 

Sophisticated  options. 

Alliance  DL.  With  standard  equipment 
typical  of  fine  European  sedans,  and  a 
provocative  array  of  options: 
computer  controlled  3-speed 
automatic  transmission.  Power 
windows  and  door  locks.  Clearcoat 

A  surprisingly  low  price. 

Such  European  engineering,  precision 
manufacturing  and  fuel  economy*  is 
remarkable.  But  the  real  achievement 
is  this: 

Renault  «£j 
starts  at 

Renault  Alliance.  The  Alliance  of 
quality  and  affordability  is  here.  At 
Renault  and  American  Motors  dealers. 


metallic  finishes  and  halogen  lights. 
5.5"  x  13"  cast  aluminum  wheels. 
Even  a  patented  Infrawave  Keyless 
Entry  System,  to  lock  and  unlock  the 
doors  from  outside  the  car. 

One  thing  that's  never  an  option: 
the  exclusive  American  Motors  Buver 


♦Compare  1983  EPA  estimates  with 
estimated  MPG  for  other  cars.  Your 
actual  mileage  depends  on  speed, 
trip  length  and  weather.  Actual 
highway  mileage  and  CA  figures  will 

Vehicle  type:  5-passenger  front  wheel  drive  2  door  and 
4  door  sedan 

Engine  type:  Transverse  mounted.  4  in  line,  Bendix 

single- point  electronic  fuel  iniection  (Bosch 
multi  point  in  CA) 

Steering  Rack  and  Pinion  with  Opt.  Power  Assist 

Brakes  Power  Assisted  Front  Disc,  Rear  Drum 

Suspension  4-Wheel  Independent 

Displacement  1397  cc 

Wheelbase  97  8  in 

Length  163.8  In. 

Curb  Weight   1945  lbs.  2  dr  1980  lbs  4-dr. 

est  hwy.    probably  be  lower. 

EPA  est.  MPG 

Protection  Plan®  With  the  only  full 
12-month,  12,000-mile  warranty  that 
covers  every  part  except  tires, 
even  if  it  just  wears  out.  Plus 
a  five-year  No  Rust-Thru 
Limited  Warranty™ 


American  Motors  n 

'♦Manufacturer's  suggested  retail  price 
for  the  Alliance  2-door.  Price  does  not 
include  tax,  license, 

destination  charges  and 
other  optional  or 
regionally  required 




Subsidized  competition  and  rising  project 
costs.  Why  the  U.S.  aerospace  industry?  is 
headed  for  yet  another  bloody  shakeout. 


Buying  balance 

Key  examples  among  more  than  30 
friendly  takeovers  {so  far)  by  Parker 
Hannifin  Corp.  Small  and  easily 
digested,  they  gave  access  to  new 
markets,  often  outside  aviation. 


Parker  Appliance  acquired  Hannifin  Manu- 
facturing Co.  (hydraulic  and  pneumatic  cyl- 
inders, sales  $7  million) 


Niehler  Maschinenfabrik,  West  Germany 
(hydraulic  devices) 

/           1956  J\ 


Tru-Flate   Inc.    (quick-connect  couplings, 
sales  S8  million) 


Holtech  Corp.  (precision  seals) 

V             59%  / 


Ideal  Corp.  (auto  parts,  sales  $40  million) 


Formed  Parker  Hannifin  Europe,  to  coordinate 
manufacture  and  sales  in  Western  Europe 


EIS  Automotive  Corp.  (auto  parts,  sales  $40 

Bertea  Corp.  (electrohydraulic  flight  con- 
trols, sales  $46  million) 
Cleveland  Wheel  &  Brake  (wheels  and  brakes 
for  small  aircraft) 

/            1981  \ 

V      22%     /  ] 


Airborne  Manufacturing  Co.  (fuel  pumps  and 
aircraft  air-conditioning) 

Percentage  of  sales  in  aerospace 


Ermeto  Armaturen,  West  Germany  (metric 
tube  fittings,  sales  $78  million) 

By  Howard  Banks 

Tj  HE  THREE-WAY  DUEL  of  BendlX 
versus  Martin  Marietta  ver- 
sus— or  plus — United  Technol- 
ogies Corp.,  following  on  the  heels  of 
last  year's  attempted  takeover  of 
Grumman  by  LTV,  signals  a  signifi- 
cant shift  that  will  take  place  in  the 
American  aerospace  industry  in  the 
coming  decade:  There  is  going  to  be 
another  major  shakeout  of  the  sort 
that  happened  in  the  1950s  and  1960s, 
when  names  like  Consolidated  Vultee 
and  Republic  Aviation  Corp.  disap- 
peared as  individual  entities. 

There  will  also  be  a  decline  in  the 
U.S.  aerospace  industry's  share  of  the 
world  market  and  in  its  importance  to 
the  U.S.  economy.  In  1960  the  indus- 
try accounted  for  3.4%  of  gross  na- 
tional product,  5%  of  manufacturing 
output  and  around  7.5%  of  manufac- 
turing employment.  By  1980  it  was 
down  to  2%  of  GNP,  3%  of  manufac- 
turing output  and  6%  of  manufactur- 
ing employment.  Since  the  aerospace 
industry  has  been  the  largest  export 
earner  outside  agriculture  ($13  billion 
net  in  1980),  this  could  be  bad  news 
indeed  for  the  U.S.  balance  of  trade. 

What  are  the  causes  of  this  impend- 
ing shakeout?  For  one  thing,  Europe- 
an governments  have  decided  that 
their  aerospace  industries  (which  to- 
gether make  up  the  largest  outside 
America-)  will  not  take  the  backseat 
any  longer.  The  Airbus  Industrie  con- 
sortium is  one  obvious  result  of  this 
decision.  But  there  are  military  exam- 
ples, too.  It  would  be  cheaper  for  the 
Europeans  to  buy  ready-made  Ameri- 
can warplanes  in  many  instances,  yet 
they  have  decided  to  develop  their 
own  planes,  such  as  the  Tornado 
strike-bomber  and  fighter  built  by 
West  Germany,  Britain  and  Italy. 

The  Japanese  are  following  suit. 
They  have  an  industry  that  assembles 
American  designs  or  acts  as  a  subcon- 
tractor. Now  they  have  decided  to  put 
up  the  money  to  buy  a  major  stake 
both  in  the  engine  and  airframe  busi- 
nesses. A  noteworthy  difference  be- 
tween the  Japanese  and  European  ef- 
forts is  that  the  Japanese  expect  their 
aerospace  companies  someday  to  go 

FORBES,  OCTOBER  11,  1982 


off  subsidy  and  turn  a  profit. 

Even  the  small-fry  want  to  get  in  on 
this  business.  Buying  an  airliner  they 
don't  really  need  and  can't  afford  is 
made  less  painful  for  small  countries 
if  some  work  can  be  gained  for  their 
own  infant  industries  as  a  condition 
of  placing  the  order.  In  commuter  air- 
liners, the  American  manufacturers 
have  stayed  out  in  the  face  of  subsi- 
dized competition  from  Brazil,  Can- 
ada, Spain  and  Northern  Ireland.  Even 
the  People's  Republic  of  China  has  a 
commuter  airliner  that  it  wants  to 
sell  in  the  West. 

The  rising  cost  of  new  projects  in 
this  business,  civil  and  military, 
means  that  there  will  be  fewer  new 
aircraft  taken  much  beyond  an  initial 
study  in  a  computer.  And  many  of 
those  that  are  built  will  be  done  in  a 
collaborative  way,  involving  other 
companies  and  countries.  That  means 
fewer  new  designs  for  design  and  engi- 
neering teams  to  work  on.  Fewer  new 
projects  also  means  that  more  compa- 
nies will  be  chasing  subcontract  work 
on  those  that  do  go  ahead,  when  they 
will  also  be  competing  with  foreign, 
subsidized  competitors. 

The  trouble  is,  aside  from  a  relative- 
ly small  contribution  from  NASA, 
American  aerospace  companies  have 
to  raise  their  own  capital  in  the  pri- 
vate market.  Washington  rarely 
comes  to  their  aid  with  handouts. 

It  is  impossible  to  guess  which  U.S. 
companies  will  disappear.  A  lot  de- 
pends on  which  will  win  which  gov- 
ernment or  airline  order.  This  time 
last  year  Grumman  was  an  obvious 
case  for  a  takeover — which  is  why 
LTV  went  after  it.  But  Grumman  was 
a  prime  Navy  contractor,  and  the 
Navy  (through  the  Justice  Depart- 
ment) helped  block  the  merger,  on 
antitrust  grounds.  In  August  Grum- 
man was  given  a  ten-year,  $2.8  billion 
order  for  845  F- 14  Navy  fighters  (sub- 
ject to  congressional  approval),  mak- 
ing it  takeover-proof.  It  also  seems 
unlikely  that  one  of  the  major  compa- 
nies, like  Boeing,  Lockheed,  General 
Dynamics  or  McDonnell  Douglas, 
could  fall  by  the  wayside.  But  remem- 
ber Douglas:  It  made  a  major  mistake 
by  being  late  on  jets  for  civil  airliners 
and  was  taken  over  by  McDonnell  in 
1967.  Much  more  likely  is  that  the 
shakeout  will  take  place  among  the 
second-tier  aerospace  companies  that 
are  already  heavily  involved  in  sub- 
contracting or  as  suppliers. 

Those  companies  that  remain  will 
likely  be  the  stronger  ones.  That  may 
mean  more  diversiiu  |  ones.  There 
has  been  for  years  a  clear  trend  toward 
diversification  to  minimi  :  the  cycli- 
cal nature  of  governrm  nt  and  airline 

orders.  Harry  Gray's  frenetic  acquisi- 
tions at  UTC  are  an  obvious  example. 
But  there  are  others.  Take  the  $1.1 
billion  (sales)  Parker  Hannifin  (see 
dxirt,p.  39).  It  was  an  industrial  com- 
pany that  became  dominated  by  war- 
time aviation  orders  for  hydraulics 
and  almost  went  broke  after  1945.  By 
a  series  of  acquisitions,  some  in  aero- 
space, most  in  other  areas  like  the 
auto  business,  it  balanced  its  business 

and  grew.  Today  only  22%  of  sales 
and  27%  of  operating  income  are  in 
aerospace.  By  adding  in  other  aero- 
space contractors  in  the  same  busi- 
ness and  by  taking  over  an  electronics 
company,  it  now  dominates  the  mar- 
ket for  what  are  called  actuators — the 
hydraulic  cylinders  that  respond  to 
movements  of  the  controls  by  the  pi- 
lot. Now  Parker  Hannifin  has  70%  of 
this  business.  ■ 

The  picture  is fuzzy for  smaller,  newer  cable 
TV  programming  networks.  That  makes  it 
even  clearer  for  the  industry  giants. 

The  strong 
get  stronger 

By  Thomas  O'Donnell 

When  a  company  raises 
prices,  it's  usually  good  news 
for  competitors.  But  that's 
not  the  way  things  work  in  the  televi- 
sion business.  This  year  the  three 
commercial  networks  boosted  prime 
time  rates  nearly  18%.  The  result? 
Tough  times  for  ad-supported  cable 
programmers.  With  the  networks  tak- 
ing a  bigger  chunk  of  corporate  ad 
budgets,  cable  got  less  than  expected. 

That,  combined  with  the  recession, 
means  the  much-talked-about  shake- 
out  of  cable  programmers  is  closer 
than  anybody  realizes.  CBS  already 
has  shut  down  its  cultural  operation, 
CBS  Cable,  because  of  high  costs  and 
disappointing  advertising  revenues. 
(Actually  most  cable  programmers 
would  prefer  not  to  accept  advertis- 
ing. The  real  money  machines  are 
movie-oriented  pay  services  like 
Time  Inc.'s  HBO,  which  charge  view- 
ers a  monthly  fee.) 

With  the  exception  of  Ted  Turner's 
Superstation,  major  ad-supported  ca- 
ble networks  are  in  the  red.  They 

•  Satellite  News  Channels.  A  24-hour- 
a-day  news  operation  run  jointly  by 
ABC  and  Westinghouse,  this  bigh- 
overhead  service  has  attracted  fewer 
subscribers  than  had  been  hoped.  The 
format  is  reportedly  being  reexamined. 

New  York  O'fi'  Ballet  on  CBS  Cable 
Death  at  an  early  age. 

•  ESPN.  This  all-sports  network 
owned  by  Getty  Oil  will  lose  big  mon- 
ey again  this  year.  Because  ESPN  is 
available  in  15%  of  U.S.  homes,  Niel- 
sen ratings  for  the  service  will  be  ob- 
tainable next  year.  That  could  help 
sell  ads  and  brighten  ESPN's  long- 
term  prospects. 

•  Christian  Broadcasting  Network. 
This  service  will  also  be  measured  by 
Nielsen  soon.  A  spokesman  claims 
CBN  could  be  in  the  black  by  late  1 983. 

•  USA  Network  Owned  by  Time, 
MCA  and  Paramount,  this  is  a  mix- 
ture of  sports,  news,  specials  and  day- 
time women's  programming  that 
probably  best  illustrates  the  future  of 
cable.  It  differs  little  from  what  is  now 
seen  on  broadcast  television. 

The  three  other  cultural  oper- 
ations— ARTS,  Bravo  and  RCTV's 


FORBES,  OCTOBER  11,  1982 

The  Entertainment  Channel — also 
face  uphill  battles.  But  each  has  some- 
thing going  for  it.  Bravo,  owned  by 
Cablevision,  and  The  Entertainment 
Channel  are  pay  services  that  could 
someday  be  moneymakers.  And 
ARTS  has  the  backing  of  rich  corpo- 
rate parents,  ABC  and  Hearst. 

Cable's  big  problem  is  that,  with 
the  profusion  of  programs,  it's  hard  for 
any  one  service  to  lure  major  advertis- 
ers interested  in  mass  markets.  This 
year,  for  example,  cable  advertising 
will  total  less  than  $200  million,  a 
pittance  compared  with  the  billions 
broadcasters  will  haul  in.  More  im- 
portant, cable  revenues  are  well  be- 

By  Barbara  Rudolph 

Back  when  he  was  steering  $2.2 
billion  (sales)  Pittston  Co.  to 
record  profits,  they  called  Ni- 
cholas T.  Camicia  "Mr.  Coal."  That 
was  seven  years  ago,  when  Pittston, 
ithe  nation's  largest  independent  pro- 
ducer, was  riding  high.  Profits  jumped 
ifrom  $25  million  in  1973  to  $200  mil- 
lion in  1975. 

Now,  many  of  Camicia's  competi- 
tors are  posting  surprisingly  good 
iprofits — but  not  Pittston.  The  com- 
pany earned  only  $20  million  for  the 
j first  half  of  this  year  on  sales  of  $1.3 
ibillion.  That's  down  56%  from  1980, 
:the  last  comparable  period.  Pittston 
:wasn't  able  to  cover  its  dividend  last 
■quarter,  and  cut  the  payout  last 
imonth.  It  was  the  first  dividend  cut  in 
company  history. 

The  problem  is  obvious:  Camicia, 
iage  66  and  the  son  of  a  coal  miner,  who 
(rose  through  the  ranks  at  Island  Creek 
Coal  to  become  Pittston's  chairman, 
'profoundly  misjudged  his  business. 

He  relied  too  heavily  on  the  metal- 
lurgical coal  market,  which  is  used  in 

low  earlier  estimates  of  $250  million 
or  more.  "There's  just  no  way  60  or  so 
ad-supported  networks  can  survive," 
says  analyst  Barbara  Dalton  Russell  of 
Kidder,  Peabody. 

That's  true,  but  don't  be  misled. 
Some  of  the  newer,  smaller  cable 
programmers  are  in  trouble,  but  cer- 
tainly not  the  cable  operators  who 
own  the  wires  and  send  programs 
over  them.  When  CBS  pulled  the 
plug  on  its  high-brow  service,  local 
cable  systems  simply  substituted 
other  fare. 

As  the  weaker  cable  networks 
stumble,  the  strong  get  even  stronger. 
Of  course,  a  few  newcomers  also  may 

the  depressed  steel  industry,  and  gam- 
bled on  the  prospects  of  selling  envi- 
ronmentally acceptable  coal  to  utili- 
ties, which  today  is  still  a  hazy  dream. 

Not  all  of  Pittston's  problems  are 
Camicia's  creation,  of  course.  His  pre- 
decessor's diversifications  are  floun- 
dering. The  oil  distribution  group  pro- 
duces half  of  corporate  revenues,  but 
margins  are  barely  2%  and  falling. 
Then  there's  Brink's,  the  security 
company,  another  business  in  which 
profits  arc  under  pressure.  Finally,  Ca- 
micia's attempt  to  move  into  noncap- 
ital-intensive activities — through  the 
purchase  of  Burlington  Northern  Air 
Freight  five  months  ago — now  looks 

Pittston's  plight  goes  back  to  the 
late  Seventies.  As  its  competitors 
were  shutting  down  their  met  coal 
production  and  digging  steam  coal 
mines,  Camicia  was  plowing  $225 
million  into  new  facilities  that  largely 
serve  the  met  market.  Today  there  is 
domestic  overcapacity  of  some  30% 
in  met  coal  and,  given  the  state  of  the 
U.S.  steel  industry,  the  domestic  mar- 
ket might  never  return. 

make  it  because  they  have  strong  fi- 
nancial backing  and  offer  products  ca- 
pable of  capturing  large  but  specific 
audiences.  The  best  example  is  MTV: 
Music  Television,  a  24-hour-a-day 
rock  music  service  owned  by  Warner 
Amex  Satellite  Entertainment  Co. 
and  aimed  at  kids,  teenagers  and 
young  adults.  Already  it  is  in  the 
homes  of  6.5  million  subscribers  after 
only  one  year. 

Sure,  there's  a  cable  programming 
shakeout  in  the  works.  It  will  leave  a 
lot  of  losers  on  the  sidelines,  but  the 
few  winners  will  win  very  big.  And 
the  cable  operating  companies  will 
make  money,  no  matter  what.  ■ 

What's  more,  the  export  market  is 
soft.  Pittston's  major  customer,  Ja- 
pan— which  normally  takes  25%  of 
its  U.S.  coal  imports  from  Pittston — 
is  heavily  overcommitted.  The  com- 
pany recently  shut  down  eight  mines, 
two  permanently.  "It's  a  very  bleak 
situation,"  Camicia  admits,  predict- 
ing growth  in  the  met  coal  market  of 
less  than  3%  a  year. 

Some  of  the  trouble  stems  from 
"compliance  coal,"  a  low-sulfur,  top- 
quality  product  that — Pittston  hoped 
— would  be  forced  on  utilities  by  the 
EPA.  That  didn't  happen;  instead,  reg- 
ulators required  new  utilities  to  in- 
stall scrubbers.  While  Camicia  pre- 
dicted two  years  ago  that  the  compli- 
ance coal  market  would  reach  25 
million  tons  annually,  he  now  pegs  it 
at  10  million  tons. 

Back  when  he  was  excited  about 
compliance  coal,  however,  Camicia 
suggested  that  some  of  Pittston's  as- 
sets might  be  sold.  There  was  talk, 
too,  of  a  joint  venture  with  an  over- 
seas company.  That  started  takeover 
rumors — and  the  company's  stock 
price  jumped,  moving  from  18  to  31 

Pittston's  Camicia 

'It's  a  very  bleak  situation." 

The  competition  may  be  doing  well — but 
not  Pittston.  Nicholas  Camicia  s  company 
is  in  all  the  wrong  markets. 

In  the  pits 
with  "Mr.  Coal" 

FORBES,  OCTOBER  1  1,  1982 


in  1980.  Camicia  pulled  in$741,000  by 
exercising  a  stock  option  when  shares 
were  close  to  that  year's  high.  Pittston 
shares  recently  traded  at  133A. 

Camicia's  latest  controversial 
move  was  his  May  acquisition  of  Bur- 
lington Northern  Air  Freight.  Pittston 
paid  $177  million  in  cash — borrowed 
cash — which  most  analysts  think  was 
too  much.  "How  can  you  pay  $150 
million  more  than  the  asset  value  of  a 
company?"  wonders  one  industry  an- 
alyst. This  year,  and  quite  possibly  for 
the  next  several  years,  BNAFI's  earn- 
ings will  fail  to  cover  Pittston's  inter- 
est expense  and  the  amortization  of 

At  best,  Pittston  seems  to  have 
bought  BNAFI  near  the  peak  of  the 
market.  Earnings,  which  averaged 
21%  growth  since  1979,  are  flat. 
What's  more,  the  fundamental  goal  of 
the  acquisition — to  move  into  a  non- 
capital-intensive business — is  now  in 
question.  BNAFI,  which  has  always 
refused  to  own  its  fleet  of  planes,  may 
not  be  able  to  continue  that  arrange- 
ment, as  the  freight  fowarding  busi- 
ness grows  more  competitive.  Cami- 
cia dismisses  that  possibility,  but  ad- 
mits that  if  Pittston  had  to  buy 
planes,  "I  guess  we'd  do  it." 

There  are  credibility  problems  at 
Pittston,  too.  Critics  feel  the  com- 
pany has  been  less  than  straightfor- 
ward with  the  investment  communi- 
ty. Last  quarter,  for  example,  Pittston 
was  hit  with  $7  million  in  charges 
connected  to  mine  closings.  Not  only 
was  this  information  not  included  in 
the  quarterly  press  release,  but  ana- 
lysts were  kept  in  the  dark  until  sev- 
eral weeks  after  the  fact. 

One  explanation  for  the  confusion 
could  be  the  fact  that  five  top  execu- 
tives have  left  Pittston  over  the  past 
two  years.  Among  the  departees  were 
two  executive  vice  presidents,  then 
the  company's  second-highest-paid 
officers.  Did  all  the  turnover  disrupt 
management?  Camicia  doesn't  think 
so.  "The  only  turmoil  was  in  the 
mind  of  a  guy  who  got  fired,"  he  says. 

That  attitude  reflects  Camicia's 
self-confidence — something  that  Pitt- 
ston's directors  have  never  seriously 
challenged.  Three  years  ago  they 
handed  Camicia  a  seven-year  con- 
tract, which  will  expire  just  before  he 
turns  70.  The  board  was  eager  to  es- 
tablish a  plan  of  succession,  and  last 
year  Camicia  tapped  Hendnk  Hartong 
Jr.,  then  president  of  Brink's,  to  be- 
come president  and  chief  operating 

These  days  the  two  are  reportedly 
feuding,  even  though  they  deny  any 
struggle.  Industry  observers,  mean- 
while, aren't  terribly  keen  on  seeing 

Hartong  as  Pittston's  next  chairman. 
He  had  no  coal  experience  when  he 
came  to  Pittston  in  1977,  and  until 
last  year  he  had  nothing  to  do  with 
Pittston's  coal  group. 

A  fresh  approach,  of  course,  may  be 
just  what  Pittston  needs.  After  all, 
Camicia — the  former  "Mr.  Coal" — 
has  made  some  major  blunders  in  his 
time.  ■ 

By  Stephen  Kindel 

W'hen  Grace  Kelly  married 
Rainier  III,  Prince  of  Monaco, 
she  did  more  than  bring  her 
movie-star  glamour  to  a  faded  sum- 
mer resort  for  Europe's  fading  aristoc- 
racy. The  daughter  of  a  Philadelphia 
construction  millionaire,  Kelly  also 
brought  along  a  formidable  amount  of 

Not  many  know  it,  but  Princess  Grace 
brought  much  more  than  mere  movie-star 
glamour  to  the  kingdom  of  Monaco. 

The  fairytale 

business  savvy.  Her  vision  of  Monaco 
has  been  so  successfully  implemented 
over  the  last  26  years  that  executives 
of  the  Societe  des  Bains  de  Mer  et  du 
Cercle  des  Etrangers  (S.B.M.),  the 
company  that  owns  Monaco's  major 
hotels  and  all  of  its  casinos,  is  serious- 
ly concerned  about  how  to  carry  on 
without  her. 

Ironically,  Princess  Grace  held  no 
official  position  at  S.B.M.;  the  state's 
ownership  of  70%  of  the  stock  made 
that  unnecessary.  Her  only  visible 
business  role  was  as  a  member  of  the 
20th  Century-Fox  board  until  that 
company's  takeover  by  Denver  oil- 
man Marvin  Davis  in  1981.  But,  say 
executives  of  S.B.M.,  Princess  Grace's 
influence  on  the  company  cannot  be 
underestimated.  She  approved  all  ar- 
chitectural, entertainment  and  expan- 
sion plans.  "She  created  all  of  the 
things  people  associate  with  Mon- 
aco," says  Josiane  Merino,  a  spokes- 
woman for  the  normally  reticent 
company.  Princess  Grace's  interest  in 
S.B.M.,  according  to  Merino,  dated 
virtually  from  the  moment  of  her 
wedding,  and  with  good  reason.  At  the 
time,  Princess  Grace's  major  concern 
was  that  Aristotle  Onassis,  who  con- 
trolled most  of  the  company's  shares, 
might  go  ahead  with  his  plan  to  turn 
Monaco  into  a  resort  on  the  order  of 
the  Costa  del  Sol,  with  its  tens  of 
thousands  of  low-cost  time-sharing 
apartments  that  were  rented  out  to 
working-  and  middle-class  northern 
Europeans.  Perhaps  the  worst  part  of 
Onassis'  plan  was  that  it  called  for  the 
abolition  of  gambling,  on  the  grounds 
that  working  people  could  not  afford 

l'rincess  Grace  of Monaco 
"The  right  kind  of  people. 


FORBES,  OCTOBER  11,  1982 

to  lose  heavily  at  the  table.  This  was, 
keep  in  mind,  before  the  days  of  At- 
lantic City.  To  all  of  Onassis' 
schemes,  Princess  Grace  demurred. 
"Monaco,"  she  said,  "is  one  place  that 
has  kept  a  19th-century  charm  ...  I 
don't  think  Monte  Carlo  can  ever  be  a 
place  for  mass  tourism.  It  has  always 
been  glamorous,  always  for  the  rich." 
The  question  was  how  to  bring  the 
rich  to  town. 

So,  according  to  Merino,  Princess 
Grace  took  on  the  role  of  creating  an 
ambience.  More  important  than 
bringing  people  to  Monaco,  she 
brought  them  to  S.B.M.:  All  of  Mona- 
co's charity  balls  and  glittering  social 
events  were  held  not  at  the  palace  but 
at  one  of  S.B.M.'s  bevy  of  facilities, 
which  includes  3  hotels,  3  casinos, 
the  opera  house,  the  tennis  and  golf 
clubs,  14  restaurants,  3  discotheques, 
2  nightclubs,  3  swimming  pools  and  1 
private  beach.  All  told,  this  operation 
brings  in  sales  that  in  the  fiscal  year 
ended  this  July  were  $90  million,  with 
profits  of  $1.8  million.  So  successful 
was  Princess  Grace  at  turning  Mon- 
aco into  a  year-round  resort,  says  Rob- 
ert Tisch,  president  of  Loews  Corp., 
which  owns  one  of  the  casinos  in  part- 
nership with  S.B.M.,  that  the  hotels 
are  filled  to  better  than  80%  capacity 
year-round.  Says  Merino,  "This  year 
we  had  a  50%  increase  in  our  U.S. 
business.  That  attests  to  her  work." 

What  it  really  attests  to  is  Princess 
Grace's  ability  to  find  new  excuses  for 
the  rich  to  gather.  Much  of  that  up- 
surge in  U.S.  business  comes  from  her 
conversion  of  the  traditional  Bal  de  la 
Rose  into  the  Yellow  Rose  of  Texas 
Ball,  under  the  sponsorship  of  Texas 
socialite  Lynn  Wyatt. 

Where  does  Monaco  go  from  here? 
"Fortunately,  all  of  the  events  for 
1983  have  already  been  scheduled," 
says  Merino.  But  the  S.B.M.  board 
must  find  a  way  to  keep  the  high 
rollers  coming  without  the  glitter  and 
the  business  counsel  Princess  Grace 
provided.  Even  before  her  sudden 
death,  there  were  hints  that  all  was 
not  well  in  the  magical  kingdom.  Ber- 
nard Combemale,  who  was  brought  in 
from  INA  of  Philadelphia  to  upgrade 
S.B.M.'s  management  in  1978,  has  de- 
serted the  ship  and  has  been  replaced 
with  Andre  St.  Mleux,  longtime  min- 

l  ister  of  state  and  a  crony  of  Rainier's. 
And,  there  were  too  many  high-rise 
apartments  built,  says  Tisch.  That  was 
tolerable  while  Princess  Grace  was 

[  alive.  But  with  her  passing,  the  people 
who  run  S.B.M.  will  have  to  find  a  new 
grace  note.  Otherwise,  Monaco  will 
become  just  another  expatriate  tax  ha- 
ven. And  the  fairytale  business  won't 
end  happily  ever  after.  ■ 

Is  Britain  s  rich  BAT  (British  American  To- 
bacco) simply  throwing  money  at  U.S.  re- 
tailing, or  is  it  building  an  attractive  and 
consistent  diversification? 

"We  are 

By  Rosemary  Brady 

F|  or  the  first  time  in  eight 
years,  each  of  the  four  divisions 
that  make  up  the  38-store  Gim- 
bel  Bros,  chain  made  a  profit  last  year. 
It  wasn't  a  big  profit,  mind  you.  None- 
theless it  was  still  significant  in  the 
eyes  of  Patrick  Sheehy,  52,  the  new 
chairman  of  the  $17.6  billion  (sales) 
BAT  Industries. 

The  world's  largest  tobacco  manu- 
facturer,   London-based    BAT  has 

RAT's  Patrick  Sheehy  lights  up 
"Ten  years  isn't  long  in  a  new  business. 

struggled  with  Gimbels  since  1973, 
when  it  paid  $200  million  for  the  de- 
partment store  chain,  plus  the  much 
more  appealing  Saks  Fifth  Avenue 
network.  So  when  operating  income 
jumped  40%  for  Gimbels  last  year, 
against  a  5.6%  increase  in  sales, 
Sheehy  felt  some  sense  of  accom- 
plishment. Although  he  has  spent 
most  of  his  32-year  BAT  career  mar- 
keting tobacco,  Sheehy  joined  the 
main  BAT  board  in  1970— one  year 
before  the  company  (then  still  known 
as  British  American  Tobac- 
co) made  the  first  of  several 
forays  into  the  tough  busi- 
ness of  retailing. 

"We  are  very  satisfied  with 
the  progress  we've  made  in 
retailing,"  says  Sheehy,  puff- 
ing calmly  on  a  State  Design 
555  cigarette  in  his  quiet  of- 
fice, lined  with  modern 
artwork,  near  Westminster 
Abbey.  Evidently,  for  BAT 
plunged  deeper  into  U.S.  re- 
tailing with  the  April  pur- 
chase of  the  Marshall  Field 
chain  for  $365  million. 

Field  looks  like  more  trou- 
ble. Expanding  wildly  in  the 
last  four  years — mainly  to 
ward  off  a  takeover  attempt 
by  Carter  Hawley  Hale 
Stores — it  has  watched  net 
profit  margins  fall  as  sales  in- 
creased, to  $1.2  billion  in 
1981.  Earning  just  1.9%  on 
each  sales  dollar,  the  Field 
chain  falls  far  short  of  the  4% 
to  5%  standard  for  successful 
department  stores.  Dean 
Witter  Reynolds  analyst  Ter- 
ence McEvoy  thinks  it  will 
take  BAT  "at  least  three  to 
five  years"  to  improve  Field 
What  kind  of  diversifica- 

tion  is  that  to  be  satisfied  with?  With 
net  income  increasing  fourfold  in  the 
last  ten  years  to  $693  million  in  1981, 
its  dividend  more  than  tripling  in  the 
same  period,  is  BAT  an  example  of  a 
company  with  too  much  cash  and  too 
little  to  do  with  it? 

Not  at  all,  says  Sheehy,  who  joined 
BAT  in  1950  after  a  stint  in  the  Irish 
Guards  and  made  the  final  step  up  to 
BAT's  chairmanship  on  Oct.  1.  "Our 
strategy  is  working.  Ten  years  is  not 
too  long  when  you  arc  going  into  a 
new  business.  It  even  took  us  12  or  13 

years  to  get  something  out  of  Brown 
&  Williamson  when  we  first  started. 
You  just  can't  turn  things  around 

Brown  &.  Williamson,  of  course,  is 
BAT's  U.S. -based  tobacco  subsidiary 
(Kool,  Raleigh,  Belair,  Viceroy  and 
Barclay  cigarettes)  with  13.9%  of  the 
market.  Elsewhere  BAT  enjoys  80% 
of  the  Brazilian  cigarette  market, 
28%  of  the  German  market  and  a 
growing  export  and  duty-free  trade. 
In  all,  tobacco  brings  BAT  $10.1 
billion  of  revenues  and  $896  million 

of  its  $1.2  billion  operating  profits. 

Its  retail  operations,  therefore,  ■ 
must  be  looked  on  in  the  context 
of  a  giant  cigarette  maker's  overall 
strategy  for  diversification  and 
growth.  Like  many  of  its  rivals, 
BAT  decided  to  branch  out  from  its 
profitable  mainstay  in  the  1960s, 
going  first  into  packaging,  paper 
and  cosmetics.  Paper  remains  the 
largest  of  those  preretaihng  ven- 
tures, now  making  up  13%  of 
BAT's  $7.89  billion  in  assets.  But  in 
dabbling  in  cosmetics,  with  Brit- 
ain's Yardley  and  other  companies,  I 
BAT  was  following  the  pattern  set 
by  other  tobacco  companies — R.J. 
Reynolds  and  American  Tobacco  in 
the  U.S.,  Imperial  Group  in  Britain 
(see  box) — making  acquisitions  in 
many  fields,  seeming  to  cast  about 
for  something  to  settle  on.  Its  board 
of  directors  had  even  ruled  out  al- 
cohol, the  favorite  diversification  of 
Philip  Morris  (Miller  Beer)  and  Im- 
perial (Courage  brewery),  because  it 
was  "another  indulgence,"  one  pos- 
sibly subject  to  controversy. 

But  retailing  was  no  bolt  from  the 
blue.  "I  can't  recall  precisely  why  we 
went  into  retailing  at  the  time,"  says 
Sheehy,  squinting  up  at  the  ceiling,  as 
if  looking  for  an  answer.  "If  you're 
talking  about  department  stores,  we 
started  out  with  a  minority  share- 
holding in  Germany." 

It  was  not  until  1971  that  BAT 
made  what  Sheehy  calls  the  "strategic 
decision"  to  encourage  the  holding 
companies  of  its  widely  diversified 
group  to  move  decisively  into  retail 
food  and  department  stores. 

What  did  the  tobacco  company  see 
in  the  difficult  trade?  Sheehy:  "We 
wanted  to  go  into  a  business  that 
was  close  to  the  consumer,  because 
we  thought  we  had  had  success  sell- 
ing consumer  packaged  goods — ciga- 
rettes. We  had  looked  at  food  but  we 
had  been  through  .  that  with  Vita 
Food  in  the  U.S.  and  that  experience 
had  not  been  rewarding.  Retailing 
seemed  more  of  a  growth  business. 
You  could  get  into  it  and  buy  a  siz- 
able business  and  still  have  only  a 
small  part  of  the  market,  so  that  you 
could  expand." 

That  is  exactly  what  BAT  did,  first 
purchasing  an  80%  share  in  Wiscon- 
sin's Kohl  Corp.  for  $72  million  in 
October  1972. 

The  original  idea,  he  explains,  was 
to  purchase  Kohl,  "a  core,  quality 
business,"  and  learn  the  ropes  on  a 
small  scale.  But  when  the  opportunity 
to  buy  Saks  arose  a  year  later,  BAT 
couldn't  hold  back.  Saks  represented 
quality.  It  was  well  managed  and  in 
good  shape.  And,  despite  the  fact  that 

This  little  piggy  stayed  home 

Hello,  boys,  I'm  Buck 
Duke  from  New 
York,  come  to  buy  your 

It  was  1901  and  the 
speaker  was  the  brash 
North  Carolinian,  James 
Buchanan  Duke,  founder 
of  the  vast,  monopolis- 
tic American  Tobacco 
Trust.  Duke,  who  later 
became  the  first  chair- 
man of  BAT  (see  story), 
had  arrived  in  England  to 
buy  out  its  cozy,  family- 
owned  tobacco  business- 
es. But  he  was  not  polite- 
ly received.  In  fact,  13 
British  tobacco  companies  joined 
forces  to  combat  Duke,  forming 
Imperial  Tobacco,  which  still  con- 
trols nearly  50%  of  Britain's  ciga- 
rette market.  They  fought  Buck 
Duke's  fire  with  fire.  Or,  at  least, 
they  did  come  up  with  their  own 
fight  song,  to  the  tune  of  "Rule 

"We'll  not  encourage  Yankee 

We'll  support  John  Bull  with  ev- 
ery Puff." 

Out  of  this  colorful  international 
battle  arose  British  American  To- 
bacco, for  which  Duke  arranged  a 
neat  market-sharing  agreement:  As 
long  as  Imperial  stayed  out  of  the 
U.S.  and  overseas  markets,  BAT 
would  stay  out  of  the  U.K.  That 
agreement  lasted  until  1972,  when 
Britain's  entry  into  the  Common 
Market  disallowed  it. 

BAT,  as  we  know  it,  went  on  to 
become  the  world's  largest  tobacco 
manufacturer.  How  did  Imperial 
fare?  Helped  by  the  special  market- 
sharing  agreement  and  its  initial 
dominant  position  in  the  U.K.,  Im- 
perial flourished  until  the  early 
1970s.  But  since  1973,  cigarette 

Imperial  Tobacco  Chairman  Geoffrey  Kent 

volume  has  declined  steadily. 
Meanwhile,  in  diversifying,  Impe- 
rial seems  to  have  tried  a  little  of 
everything,  from  potato  chips  to 
poultry  to  beer  to  Howard  John- 
son's, one  of  the  U.S.'  less-than- 
exciting  restaurant  groups. 

Imperial  has  not  fared  well  with 
many  of  its  diversifications  and  its 
new  chairman,  Geoffrey  Kent,  60, 
who  has  headed  both  the  Player 
tobacco  and  Courage  brewing  sides 
of  the  company,  has  been  selling  the 
underperformers  off.  He  has  held 
on  to  Howard  Johnson's,  launched 
a  major  recovery  program — earn- 
ings are  up  strongly  this  year — and 
shareholders  are  awaiting  his  deci- 
sion on  where  to  reinvest  funds 
from  the  sale  of  assets. 

Kent,  who  once  worked  for  John- 
son &  Johnson,  has  also  done 
something  else  that  may  indicate 
why  tobacco  companies  so  often 
have  trouble  succeeding  in  other 
fields.  He  has  declared  internal  war 
on  the  "tobacco  culture,"  as  he 
calls  it — the  reliance  on  compara- 
tively easy  tobacco  profits  that 
takes  the  competitive  edge  off  a 
businessman. — R.B. 


FORBES,  OCTOBER  1 1,  1982 

Saks  came  with  neglected  Gimbels,  it 
came  fairly  cheap. 

But  it  was  Gimbels  that  taught  BAT 
about  retailing.  Not  only  were  the 
stores  run  down,  the  fashions  seemed 
stuck  in  the  Dark  Ages.  ("They  were 
not  contemporary,"  Sheehy  sniffs.) 
Competitors  like  Macy's  in  New 
York  and  Bamberger's  in  Philadelphia 
had  taken  away  some  customers, 
while  discount  stores  had  taken  oth- 
ers. As  a  newcomer  to  the  field,  BAT 
(and  its  manager,  Brown  &  William- 
son) didn't  know  enough  about  retail- 
ing to  assess  its  managers:  They  came 
and  went  at  a  rapid  rate  for  the  first 
few  years,  as  they  tried  pushing  Gim- 
bels upmarket  (which  didn't  work) 
and  pulling  it  back  down  again.  Final- 
ly, BAT  got  successful  managers  from 
Saks  to  lend  a  hand.  They  decided  to 
gear  Gimbels  to  the  low  and  middle 
income,  the  very  market  Macy's  had 

Looking  back  on  BAT's  Gimbels  ex- 
perience, Sheehy  says  the  company 
relearned  "that  you  really  have  to  be 
able  to  identify  and  attract  the  very 
best  management."  Tobacco  men,  he 
adds,  well  understand  the  need  for 
financial  discipline  and  planning,  but 
they  know  absolutely  nothing  about 
merchandising  fashions  or  selecting 
store  locations. 

Of  course,  Saks  was  different.  The 
tobacco  group's  cash  flow  ($948.8  mil- 
lion last  year)  has  served  Saks  well. 
Through  an  aggressive  expansion  pro- 
gram, BAT  has  spread  the  Saks  name 
across  the  U.S.  Plans  released  in  1979 
projected  Saks'  turnover  to  double  to 
$1  billion  within  a  decade.  Henry  Fn- 
gon,  executive  vice  president  of  BA- 
TUS  in  Louisville  (the  holding  com- 
pany for  BAT's  U.S.  retailing  inter- 
ests), calls  Saks  "one  of  the  great 
retailing  success  stories  in  recent 

As  BAT  spread  the  Saks  name,  it  is 
now  prepared  to  do  much  the  same 
with  Marshall  Field.  Sheehy  likes  the 
look  of  the  company  to  begin  with. 

The  company's  main  problem,  as 
he  sees  it,  boils  down  to  financing,  not 
retailing:  "Quick  acquisitions  put  a 
heavy  borrowing  on  the  balance 
sheet,  and  interest  payments  quickly 
offset  any  improved  performance." 
With  BAT's  money  behind  it,  the 
company  will  be  able  now  to  concen- 
trate on  retailing. 

The  lesson  in  all  this  for  other  di- 
versifying companies  is  that  BAT, 
through  patient  effort,  has  accumulat- 
ed a  growing,  attractive  and  profitable 
retailing  group — $126.8  million  pre- 
tax in  the  U.S.  last  year.  Marshall 
Field,  analysts  estimate,  will  add  $25 
million  pretax  this  year.  The  com- 

pany found  one  business,  paid  the 
dues  to  learn  it,  and  now  looks  for- 
ward confidently  to  growth,  long 
term,  in  another  business  it  knows. 

Sheehy  admits  BAT's  retail  inter- 
ests are  not  immune  to  the  recession 
and  predicts  results  will  not  quite 
keep  pace  with  last  year's  44%  rise  in 
operating  profits  in  the  U.S.  But,  over- 
all, he  is  confident  BAT  will  raise 
nontobacco  earnings  from  the  present 

level  of  26%  of  BAT's  total  to  40%  by 
1990 — with  no  slacking  off  envi- 
sioned for  tobacco. 

In  contrast  to  conglomeration  or 
many  of  the  purely  "financial"  acqui- 
sitions that  pass  for  management  de- 
cisions these  days,  BAT's  diversifica- 
tion looks  like  a  quality  job.  Sheehy 
sums  up:  "We've  got  real  prospects  for 
growth,"  he  says,  "not  merely  the 
need  to  buy  something."  ■ 

By  Jeff  Blyskal 

For  years,  Americans  couldn't  get  enough 
Big  Macs  and  Whoppers.  But  today  that 
may  no  longer  be  the  case. 

The  burger  boom 
slows  down 

chains'  steady  capture  of  customers 
from  the  local  malt  shops. 

Now  the  market  has  been  gobbled 
up.  "There  are  very  few  independents 
left  to  put  out  of  business,"  says 
Denny's  CEO  Vern  Curtis,  "so  now 
the  chains  will  have  to  work  on  each 
other  for  the  same  business,  and  that 
can  get  pretty  bloody." 

Saturation,  of  course,  is  a  dirty  word 
in  any  industry,  but  the  evidence  is 
clear  that  there  may  indeed  be  too 
many  fast-food  restaurants  chasing 
too  few  customers.  McDonald's  sales 
per  restaurant  in  the  U.S.  zoomed 
from  $464,000  in  1972  to  over  $1  mil- 
lion last  year — figures  that  look  pretty 
good.  But  account  for  food-away- 
from-home  inflation,  and  McDonald's 
real  sales  per  unit — an  indicator  of 
customer  volume — have  actually  fall- 
en since  1976.  "Over  the  last  five 
years,  McDonald's  has  raised  prices 
11%  per  year  and  lost  about  4%  of  its 
customers  per  store  per  year,"  says 
Bache  analyst  Mike  Culp. 

McDonald's,  which  refused  to  dis- 
cuss the  matter  with  Forbes,  is  not 
alone.  Real  sales  per  unit  have  been 
dropping  at  Pillsbury's  Burger  King 
since  1975 — let  alone  at  such  chains 
as  Sambo's,  now  in  Chapter  11,  and 
Gino's,  acquired  this  year  by  Marriott 
to  be  carved  up  into  Roy  Rogers  res- 
taurants. "Average  unit  volume  is 


A^pansion,  the  $10  billion  fast- 
mm  ^Lfood  hamburger  business  is 
headed  for  trouble.  "Hamburgers  are 
still  our  basic  item,"  says  David 
Thomas,  founder  of  Wendy's,  number 
three  in  the  industry  (behind  McDon- 
ald's and  Burger  King).  "But  we're  not 
going  to  see  the  same  growth  coming 
from  them  as  we  have  in  the  past." 
Thomas  says  hamburgers  are  now 
40%  to  45%  of  sales,  compared  with 
60%  in  1978.  Industrywide,  orders  for 
hamburgers  at  fast-food  restaurants 
have  declined  more  than  10%  over 
the  past  three  years,  according  to  the 
National  Restaurant  Association. 

Why?  One  reason  is  sharp  beef  price 
rises  in  1979  passed  on  to  hamburger 
eaters.  But  on  top  of  that,  "A  diet  of 
hamburgers,  french  fries  and  milk 
shakes  just  no  longer  satisfies  the  fast- 
food  consumer,"  says  Jack  Goodall, 
president  of  Ralston  Purina's  800  Jack 
in  the  Box  restaurants.  Per  capita  con- 
sumption has  not  grown  as  much  as 
you  may  think:  At  19  pounds  of  ham- 
burger for  every  American  per  year,  it 
is  only  10%  higher  than  it  was  in 
1971.  Compare  that  with  increases 
over  a  similar  period  of  20%  for  chick- 
en and  24%  for  fish.  The  burger  boom 
was  really  caused  more  by  the  big 

probably  the  most  important  statistic 
in  this  business,"  says  Denny's  Cur- 
tis, who  has  watched  his  per-unit  vol- 
ume recover  recently  after  a  nose  dive 
in  1979  and  1980.  "When  it's  falling, 
it  indicates  declining  productivity 
and  a  drop  in  customer  acceptance." 

Meanwhile,  return  on  equity  for 
most  players  in  the  fast-food  industry 
has  been  trending  steadily  downward 
since  the  mid-Seventies.  At  Chart 
House,  which  operates  96  steak 
houses  and  264  Burger  King  fran- 
chises, ROE  is  down  from  24.3%  in 
1976  to  20%  last  year.  Wendy's  ROE 
is  down  from  the  chain's  boom- 
growth  years'  peak  of  40.4%  in  1975 
to  less  than  half  that  today. 

The  big  burger  chains  have  been 
trying  to  meet  the  problem  with 
menu  diversification.  Since  1979 
Wendy's  and  Jack  in  the  Box  have 
added  chicken  sandwiches  and  salads; 
Hardee's,  ham  and  cheese  sand- 
wiches; Burger  King,  veal  parmigiana 
and  chicken  sandwiches;  and  McDon- 
ald's, processed  chicken  and  barbe- 
cued pork  items. 

While  real  sales  industrywide  are 
up  slightly  so  far  this  year,  it  looks  as 
if  stiff  competition  is  here  to  stay. 
That  will  be  expensive.  For  one  thing, 

television  advertising  by  the  top  15 
fast-food  chains  was  up  28%  in  the 
first  half  of  1982,  and  there  are  even 
more  costly  expenses  not  at  once  ob- 
vious. Hamburger  chains,  built  on  the 
idea  of  moving  one  item  in  volume, 
cannot  expand  their  menus  too  much 
without  losing  efficiency.  "You  have 
to  tread  a  fine  line,"  says  Goodall, 
"because  you  have  to  move  large 
numbers  of  customers  quickly  to 
make  a  good  return  on  your  assets." 
Adds  Culp,  "The  specialty  sand- 
wiches have  not  been  very  successful 
in  drawing  new  customers — not  even 
for  McDonald's — but  rather  have  giv- 
en an  alternative  to  people  who  are 
sick  of  eating  hamburgers.  Whatever 
incremental  new  business  they  have 
brought  in  is  certainly  not  worth  the 
higher  investment." 

With  ever-increasing  costs  of  open- 
ing new  outlets — an  average  $300,000 
per  Wendy's  unit  in  1969  vs.  twice 
that  today — the  resultant  slowed  ex- 
pansion rates  have  forced  burger 
houses  to  increase  plant  utilization  in 
other  ways,  too.  In  addition  to  break- 
fast, the  fast-feeders  are  considering 
full  dinners.  Wendy's,  for  example,  is 
test  marketing  five  entrees  in  Cincin- 
nati— beef  and  mushrooms  and  chick- 

en parmigiana  among  them,  with  a 
potato  and  salad.  But  here,  too,  there 
are  problems.  "It's  going  to  be  diffi- 
cult for  fast-feeders  to  attract  dinner- 
time traffic,"  observes  Gerald  Office, 
chairman  of  Ponderosa,  a  budget  steak 
house  chain.  "They're  trying  to  utilize 
existing  food  items  that  are  only 
dressed  up  differently,  served  on  Sty- 
rofoam  plates  and  with  no  table  ser- 
vice." Indeed,  even  McDonald's  has 
yet  to  come  up  with  a  dinnertime  item 
after  the  recent  failure  of  its  steak 
sandwich  available  in  many  locations 
only  between  4  p.m.  and  6  p.m. 

The  fundamentals  of  fast  food  per  se 
remain  sound.  Recession  or  no,  people 
are  still  eating  away  from  home  in  in- 
creasing numbers.  In  fact,  hard  times 
can  prompt  a  family  to  forego  dinner  at 
a  table-service  establishment  in  favor 
of  a  more  affordable  Big  Mac.  Says 
USDA  economist  Mike  Van  Dress, 
"There  are  still  all  kinds  of  opportuni- 
ties out  there."  For  example?  The  fast 
seafood  business  has  great  potential, 
says  Bache's  Culp.  "With  Arthur 
Treacher's  falling  out,  Jerrico  [Long 
lohn  Silver's  Seafood]  and  Shoney's 
[Captain  D's]  will  be  able  to  make 
money  hand  over  fist."  But  the  ham- 
burger, star  of  the  show,  has  peaked.  ■ 

McDonald's  golden  arches,  circa  1978 

Too  many  fast-food,  restaurants  industrywide  chasing  too  few  burger-bored  customers? 


FORBFS  OCTOBER  M    1Q«7  li 

A  new  car  should 

look  like  it's  one  of  a  kind. 

Not  one  of  the  crowd. 

For  $11. 00,  Federal  any  time  of  the  day  or  night  ir 

Express  will  come  to  your  seconds,  get  your  letter  wher  ei 

office,  pick  up  your  Overnight  it's  going  by  noon  the  next  n 

Letter, SM  deliver  it  to  any  of  business  day*  and  send  you  ie 

13, 000  communities,  trace  it  free  proof  of  delivery. 

KbSSuR  ™M»£h£ S.VIn^.^S^  5?*"  ""I5 ■  °the!;ar?s^n,'i^a^rIla>-  dSlivery  by  sPeclal  re<iuest'  available  at  an  additional  service  charge.  Areas  served,  delivery  times, 
liability  subject  to  limitations  in  the  Federal  Express  Service  Guide.  ©  1982  Federal  Express  Corporation  Express  Mail"  is  a  registered  trademark  of  the  United  States  Postal  Service 


The  choice  is  yours.  But 
ederal  Express  has  enough 
>nfidence  in  your  good  judg- 
ent  to  have  included  the 
)upon  to  your  right: 

For  a  free  kit  of  Overnight  Letter  Materials,  send  to: 
Overnight  Letter  Kit,  Federal  Express  Corp., 
P.O.  Box 727,  Memphis,  TN  38194-2431. 

Name  Title  






_  Account  #  (if  any). 





The  New  Savins. 
More  revolutionary  than  xerography  itself. 

Forget  everything  you  ever 
knew  about  copying.  Savin 
technology  has  created  a  whole 
new  way  of  doing  it-and  it's 
the  closest  copying  has  ever 
come  to  printing. 

It's  called  the  Landa 
Process  and  only  Savin  has  it. 
Not  only  do  you  g  lacker, 
sharper,  cleaner  a  »t 
you  get  them  on  vi i 
kinds  of  paper.  Even 

amazing  is  the  fact  that  this         And  the  first  reliable  short 
exclusive  process  can  easily  be      paper  paths.  Revolutionary 
added  to  Savins  already  in  place!   technology  at  an  economical 

price  is  why  we  were  the  first  tc 
outplace  Xerox  and  IBM. 

Before  you  buy  any  new 
copier,  you  owe  it  to  yourself  to 
see  the  new  Savins  first.  Call 
800-431-1730.  In  New  York 
State,  914-769-3012.  And  let 
us  show  you  the  closest  copy- 
ing has  ever  come  to  printing 

Innovation  like  this  is 
exactly  what  you ' ve  come  to 
expect  from  Savin.  After  all,  we 
started  the  small  copier  revolu- 
tion. And  brought  you  the  first 
copiers  with  built-in  brains. 


®  i    •        Savin  logotype  are  registered  trademarks  of  Savin  Corporation  ®  Xerox  is  a  registered  trademark  of  Xerox  Corporation. 
®  IBM  is  a  regis.  nark  of  IBM  Corporation.  Landa  Process  is  a  trademark  of  Savin  Corporation  ©  1982  Savin  Corporation.  Valhalla.  N  Y  10595 

Productivity  is  more  than  robots  and  fast 
assembly  lines.  It's  also  finding  new  ways 
to  put  goods  in  the  hands  of  customers. 

from  doodads 

By  William  Baldwin 


less,  unimaginative  order- 
takers  eking  out  1%  profit 
margins.  The  right  entrepreneur, 
however,  can  turn  distribution  into  a 
glamour  business  with  growth  rates 
and  returns  on  equity  reaching  20%. 
Look  at  Lawson  Products 
Inc.,  which  has  found  a  way 
to  clear  9%  net  profit  mar- 
gins on  spare  parts,  by  spar- 
ing customers  valuable 
time.  Or  W.W.  Grainger 
Inc.,  which  has  become  a 
Sears,  Roebuck  of  industri- 
al supply,  marketing  every- 
thing from  grommets  to 
hot-tub  pump  motors. 
Then  there's  Vallen  Corp., 
a  seller  of  safety  equip- 
ment, which  is  finding 
ways  to  save  its  customers 
the  cost  of  maintaining 

What  these  companies 
and  others  like  them  (see 
table,  p.  56)  know  is  that  the 
cost  of  industrial  supplies 
just  begins  with  the  price 
tag  on  the  item.  "The  dollar 
you  spend  on  the  invoice  is 
the  tip  of  the  iceberg,"  says 
William  O'Connell,  presi- 
dent of  Vallen.  Beyond  this, 
there  are  the  salaries  in  the 
purchasing  department,  the 
paperwork  in  accounts  pay- 
able and  the  cost  of  discard- 
ing obsolete  stock.  Helping 
customers  minimize  ex- 
penses like  these  is  how 
good  distributors  can  earn 
their  keep. 

In  fact,  smart  suppliers 
and  other  service-sector 
firms  must  provide  most  of 

the  economy's  future  productivity 
gains.  The  reason  is  simple  arithme- 
tic: Manufacturing  is  already  so  auto- 
mated that  it  employs  only  one  out  of 
five  workers.  A  year  ago  wholesale 
and  retail  trade  overtook  the  manu- 
facturing sector  in  total  employment, 
and  the  lead  is  widening.  That  leaves 
plenty  of  room  for  efficient  distribu- 

The  nuts 

crimp  terminals  at  Lawson  Products 
and  bolts  of  the  business  is  convenience 

tors  to  supply  themselves  with  hand- 
some profits. 

Lawson  Products: 
"A  fastener  program" 

The  1,100  Lawson  salesmen  on  the 
road  pushing  1 7,000  different  replace- 
ment parts  don't  talk  price,  they  talk 
quality  and  convenience.  Customers 
don't  buy  nuts  and  bolts,  but  a  "fas- 
tener program."  That  means  hard- 
ware of  a  higher  grade  than  usual, 
kept  in  Lawson  parts  bins,  each  neatly 
labeled  and  periodically  restocked  by 
a  Lawson  man. 

"We  don't  claim  to  be  the  cheap- 
est," says  Sidney  Port,  71,  founder  (in 
1952)  and  executive  committee  chair- 
man of  the  Des  Plaines,  111.  company. 
"Our  products  go  into  big  pieces  of 
equipment.  Whether  they  pay  a  few 
cents  more  for  a  tiny  part  doesn't 
make  a  bit  of  difference."  Except  to 
Lawson,  which  earned  just  over  $10 
million  last  year  on  $110  million  in 

This  labor-intensive  selling  scheme 
yields  savings  for  Lawson  customers 
like  Steve  Stevens,  head  of  mainte- 
nance for  a  school  district  stretched 
over  186  square  miles  northwest  of 
Houston.  He  seems  to  be 
paying  a  stiff  price:  $12.64  a 
box  for  one  style  of  wood 
screw,  for  example,  quoted 
at  $4.53  at  a  screw  wholesal- 
er in  the  city.  Trouble  is,  this 
wholesaler  is  20  miles  away 
and  happened  to  be  out  of 
that  particular  style  when  a 
reporter  called. 

Lawson,  by  contrast,  ships 
from  five  regional  ware- 
houses, each  well  enough 
stocked  to  boast  99%  order 
fulfillment.  For  Stevens,  the 
arrival  of  the  Lawson  sales- 
man has  meant  more  time 
for  his  carpenters  to  fix 
broken  school  windows. 
"Before,  they  were  buying  a 
few  screws  here  and  a  few 
there  and  leaving  them 
around  in  bags, "  he  says.  "It 
would  take  them  an  hour  to 
get  to  the  hardware  store  and 

Lawson  knows  about 
conventional  productivity 
gains,  too.  Automated  parts 
counters  gobble  screws 
from  kegs  and  feed  them 
into  prim  Lawson-yellow 
boxes,  at  which  point 
they're  marked  up  an  aver- 
age 240%  and  sent  by  UPS 
to  customers.  Although  a 
majority  of  its  parts  carry 
the  Lawson  brand,  none  are 
manufactured  in-house. 

FORBES,  OCTOBER  11.  1982 



Labor.  Skilled.  Trained.  Trainable. 

It's  a  major  consideration 
when  choosing  a  plant  location, 
one  in  which  Louisiana  can 
give  you  a  lot  of  help.  Help  in 
conducting  labor  availability 
surveys.  Help  in  screening  and 
recruiting  a  work  force.  Help  in 
the  training  of  your  new  workers 
to  your  specifications  and 
standards.  And  Louisiana's  help 

includes  picking  up  the  tab  so  all 
of  this  is  free  to  you. 

In  Louisiana  you'll  find 
trainable  labor,  including  a  large 
female  work  force,  in  both  metro 
and  rural  areas.  And  wherever 
you  locate  you'll  find  that 
Louisiana  workers  work  hard, 
with  a  value  added  record  of 
productivity  that  is  46  per  cent 
above  the  national  average. 

Write  for  our  free  report: 
Louisiana  Office  of  Commerce  &  Industry 
P.O.  Box  44185,  Dept.B4 
Baton  Rouge,  LA  70804 





Address  _ 

10-Year  Tax  Exemption  •  Energy 

Revenue  Bond  Financing 

Enterprise  Zones  •  Training  Programs 


Will  Lawson  try  that  soon?  Not 
likely,  since  that  may  be  why  earn- 
ings per  share  have  climbed  620% 
over  the  past  decade.  Manufacturing 
is  always  vulnerable  to  foreign  in- 
roads. First-class  service  is  not. 
Vallen  Corp.: 
Vendor  stocking 

Back  in  1947,  Leonard  Bruce,  then  a 
27-year-old  Chicago  goggles  sales- 
man, set  off  in  search  of  a  new  terri- 
tory. He  landed  in  Houston  and  pros- 
pered mightily.  The  Vallen  Corp.  he 
founded  and  still  presides  over  netted 
$2.4  million  on  $37  million  (sales)  in 
its  fiscal  year  ended  in  May. 

Bruce  owes  some  thanks  to  growth 
in  the  postwar  petrochemical  indus- 
try and  to  ever-tighter  job-safety  regu- 
lations. But  his  would  probably  still 
be  just  another  small,  family-run  in- 
dustrial supplier  if  not  for  a  special 
emphasis  on  making  things  conve- 
nient for  customers.  Vallen  broadened 

W.W.  Grainger's  "motor- 
book"  advertises  bits,  bolts, 
sheaves,  shelves,  solder,  so- 
lar water  heaters,  self-extin- 
guishing garbage  cans  and 
mop  wringers.  Why?  To  save 
a  repairman  a  costly  side 
trip.  And  to  make  it  easier 
for  Grainger  to  Jill  its  truck 

its  product  line  as  fast  as  finances 
permitted,  so  that  plant  safety  direc- 
tors could  do  all  their  ordering  from 
one  salesman.  Today  the  company 
handles  6,000  items,  from  acid  hoods 
to  vapor  sniffers. 

Vallen  has  found  other  ways  to 
streamline  distribution.  In  1974  it 
won  an  account  at  Dow  Chemical's 
Freeport,  Tex.  complex  under  what 
Dow  calls  its  "vendor-stocking  pro- 
gram." This  lets  Dow  dodge  most  of 
the  costs  of  keeping  a  stockroom, 
shopping  by  phone  and  scrambling  for 
out-of-stock  items.  Instead,  when  a 
plant  manager  needs  12  hardhats  he 
keys  that  request  into  a  computer  sys- 
tem with  a  terminal  at  Vallen's  Free- 
port  branch.  Vallen  agrees  to  main- 
tain enough  inventory  on  250  items  to 
answer  95%  of  requisitions  immedi- 
ately, and  Vallen  trucks  deliver  to 
Dow  every  two  hours.  Vallen  also  ac- 
cepts slightly  lower  than  usual  prices 
under  the  Dow  contract.  In  return,  it 
gets  a  large  account  and  payment 
within  ten  days. 

Vendor  stocking  can  work  only  at 
large  plants — the  Freeport  chemical 
complex  is  the  western  hemisphere's 
largest — so   Vallen   is   working  on 


Sony  mixes  business  with  pleasure. 

Sony  announces  a  suc- 
cessful merger:  the  TCS-310. 

It'll  take  your  dictation  just 
as  well  as  it  plays  your  favorite 

This  Sony  comes 
with  two  built-in  stereo 
microphones  and  has 
metal  tape  playback 
capability.  So  both 
symphonies  and  statis- 
tics will  sound  great 
through  its  feather- 

weight stereo  headphones. 

If  you  want  to  pack  an 
even  smaller  Sony  there's  the 

It  fits  in  your  shirt  pock- 
et. Yet  it  records  and  plays 
back  in  stereo  on  a  micro- 

It  also  features  the 
adjustable  MS  stereo 
microphone.  Set  it  one 
way  for  a  conversation 
and  another  way  for  a 

convention.  Either  way  you'll 
get  a  clean  and  precise  record 
ing  with  good  stereo  separa 
tion.  The  Sony 
TCS-310  and 
M-1000.  They 
make  mixing 
business  with 
pleasure  a 


1982  Sony  Corporation  of  America  Sony  is  a  trademark  of  Sony  Corporation  Models  shown  TCS  310  and  M-1000,  with  MDR-1L1  headphones  MDR-1L1  headphones  supplied  with  TCS-310  and  M-1000 


Car  and  Driver  magazine  tested  our  '82  Chevrolet  Caprice.  Three  differei 

editors.  One  unanimous  opinion: 

"  America's  finest  example  of  big  car." — Larry  Griffin 

"Most  European  and  Japanese  drivers  would  marvel  at  this  car's  velvety 

ride Rich  Ccppos  ,  , 

•  if 




no  its  REPunmon 


■  ■ 

D  DRIVER  JULY  1982. 

'The  Caprice  is  the  very  essence  of  the  fussless,  imperturbable  container  that 
cs  up  endless  stretches  of  these  United  States . .  ."—Larry  Griffin 

I  If  you'd  like  to  know  what  America's  carmakers  have  been  up  to . , ,  you 
it  to  yourself  to  drive  an  F41 -equipped  Caprice — or  any  Caprice  for  that 
ler." — Rich  Ceppos 

Middlemen  make  money,  too 

These  companies  make  wholesaling  look  easy.  Leonard 
Bruce  started  his  Vallen  Corp.  at  the  age  of  27  with 
$5,000  in  savings  and  $2,000  in  consigned  goggles.  G.B. 
Van  Dusen,  now  68  and  chairman  of  the  company 
bearing  his  name,  was  26  when  he  borrowed  $300  for 
some  parts  and  opened  shop  in  a  Minneapolis  airport 

terminal.  But  the  nice  returns  vanish  if  manage- 
ment does  not  rapidly  add  new  product  lines  and 
accounts  and  kill  slow  ones.  NCH's  return  on  equity 
is  half  what  it  was  a  few  years  ago.  Thanks  to  the 
recession,  Van  Dusen's  earnings  per  share  have 
tumbled  from  $1.76  in  fiscal  1980. 


-Earnings  per  share 


Net  profit 

Return  on 





Company  //jroducts 




12  months 

growth  rate 



Aceto  Chemical/chemicals1 

$  91 







American  Hospital  Supply Imedical 








WW  Grainger/wo/o/s,  misc 








Lawson  Products/fasteners 








NCH/bldg  main/  supplies2 








Premier  \n&\isti\d\l fasteners,  electronics* 








Vallen/s«/t>(r  equipment3 








Van  Dusen  Air/ 'aircraft  parts5 








'Year  ended  6/30/82    ^Year  ended  4/30/82.    *Year  ended  5/31/82.    4Five-vear  growth  rate    Vear  ended  3/31/82. 

smaller  variations.  It  is  negotiating  to 
set  up  safety  equipment  stores  inside 
customers'  plants,  staffed  by  part- 
time  workers  who  have  retired  from 
jobs  at  those  same  plants.  What  Val- 
len is  really  selling,  then,  is  a  way  for 
its  customers  to  cut  stockroom  staff. 
With  ever-rising  labor  costs,  that's  a 
strategy  that  can't  miss. 
W.W.  Grainger: 
Fast  turnover 

Grainger  calls  its  1,092- 
page  catalog  the  "motor- 
book"  because  of  a  heavy 
dose  of  electric  motors,  fans 
and  blowers,  some  of  which 
it  manufactures.  But  for 
this  $867-million-a-year 
company,  making  motors 
has  proved  far  less  lucrative 
than  distributing  them — 
along  with  a  lot  of  other 
things.  That's  why  Chair- 
man David  Grainger,  54, 
son  of  the  man  who  found- 
ed the  firm  in  1927,  de- 
scribes his  business  this 
way:  "Having  the  right 
thing  in  the  right  place  at 
the  right  time." 

And  what  a  collection  of 
things.  The  motorbook  ad- 
vertises bits,  bolts,  sheaves, 
shelves,  pillow  blocks, 
posthole  diggers,  solar  hot- 
water  heaters,  self-extin- 
guishing garbage  cans  and 
mop  wringers.  Why  does  a 
motor  distributor  sell  mop 
wringers?  Why  not,  if  that 
saves  a  maintenance  work- 
er a  side  trip?  Signs  at 
Grainger's  165  stores  warn 

WHOLESALE  ONLY,  but  this 

is  really  a  retail  business, 
with  a  $111  average  sales 
ticket.  The  typical  custom 

er  is  a  hurried  repairman  who  comes 
for  a  replacement  motor — and  who 
may,  while  he's  at  it,  pick  up  a  $9.65 
pound  of  solder  that  he  could  have 
gotten  for  $6.20  at  a  plumbing  shop. 
Time  is  money. 

There's  another  side  to  this  mass- 
merchandise    approach.  Grainger's 

Automatic  storage  retrieval  at  W.W.  Grainger 
"The  right  thing  in  the  right  place." 

line  of  9,800  products  and  24,000  parts 
has  reached  a  critical  mass  that  keeps 
shipping  costs  down.  All  merchandise 
is  gathered  through  1.6  million  square 
feet  of  warehouses  near  its  Skokie,  111. 
headquarters.  (This  hub  will  be  dupli- 
cated with  a  1.4-million-square-foot 
building  to  open  in  Kansas  City  this 
winter.)  There  it  is  arranged 
into  assortments  shipped  at 
least  weekly,  in  full  truck- 
loads,  to  the  stores.  With 
less  volume,  Grainger 
would  have  to  settle  for 
half-filled  trucks  or  less-fre- 
quent deliveries.  The  week- 
ly deliveries  in  turn  enable 
branches  to  satisfy  buyers 
without  holding  huge  in- 
ventories of  their  own. 

Altogether,  the  company 
turns  over  its  distribution 
inventory  3  times  a  year. 
That  doesn't  sound  like 
much,  but  remember  that 
Grainger  is  straddling  two 
levels  in  the  distribution 
system.  The  alternative  is 
hardware  jobbers  gathering 
merchandise  from  the  man- 
ufacturers and  dispersing  it 
to  local  industrial-supply 
houses.  If  jobber  and  suppli- 
er both  turn  inventories  4 
times  a  year,  their  combined 
turnover  rate  is  only  2. 
That's  why  the  competition 
seems  to  be  losing  ground: 
Grainger  has  quadrupled 
sales  over  the  past  decade, 
while  getting  long-term 
debt  down  to  4%  of  total 
capital  and  rarely  letting  re- 
turn on  equity  dip  below 
17%.  Many  a  high-produc- 
tivity manufacturer  would 
be  lucky  to  do  so  well.  ■ 


FORBES,  OCTOBER  11,  1982 

PI  1 

Mystic  Seaport  by  Alfred  Eisenstaedt 

America  meant  a  new  start.  And  the  men  who 
landed  here  started  a  world  with  new  goals,  new  customs, 
even  a  new  whiskey.  Old  Grand-Dad  still  makes  Kentucky 
Bourbon,  the  only  truly  American  whiskey,  just  the  same 
as  we  did  in  1882.  It's  the  spirit  of  America. 

For  a  19"x26"  print  of  Mystic  Seaport,  send  a  check 
or  money  order  for  $4.95  to  Spirit  of  America  offer,  P.  O.  Box  183M, 
Carle  Place,  N.Y.  11514. 

Old  Grand-Dad 

Kentucky  Straight  Bourbon  Whiskey  86  Proof  Old  Grand-Dad  Distillery  Co .  Frankfort.  KY©1982  National  Distillers.  Inc. 

Sysco  Corp.  charges  a  little  more,  and 
makes  a  little  more,  than  other  food  distri- 
bution companies.  How? 

"Don't  sell  food, 
sell  peace 
of  mind11 

By  Anne  Bagamery 

Why  is  $1.7  billion  (sales) 
Sysco  Corp.  more  profitable 
than  almost  any  of  the  other 
2,000-odd  firms  in  the  $55  billion-a- 
year  business  of  wholesaling  food  to 
restaurants  and  other  institutional 
servers?  A  favorite  company  anecdote 
tells  this  story: 

Preparations  for  a  lobster  roast  at 
Houston's  toney  Inn  on  the  Park  were 
going  smoothly  until  the  chef  noticed 
unexpected  guests  and  found  he  was 
ten  lobsters  short.  At  5  p.m.  on  a 
Saturday,  where  was  he  going  to  find 
fresh  lobsters?  Panic-stricken,  the 
chef  called  his  Sysco  representative  at 
home.  The  salesman  jumped  into  his 
car,  drove  to  a  gourmet  store  that  he 

knew  would  be  open  until  6  p.m., 
bought  the  lobsters  and  delivered 
them  to  the  hotel.  He  even  slapped 
them  on  the  grill  himself. 

Chairman  John  Baugh,  who  has 
worked  35  years  in  food  distribution, 
drives  home  the  point:  "The  typical 
food  service  company  picks  a  case  of 
frozen  french  fries  out  of  the  ware- 
house and  dumps  it  on  the  restau- 
rant's back  porch.  Where's  the  skill  in 
that?  Where's  the  creativity?  Our  peo- 
ple don't  just  sell  food — they  sell 
peace  of  mind." 

If  Baugh  sounds  a  little  like  an  IBM 
salesman  promising  worry-free  com- 
puting, well,  the  parallel  is  apt.  Hous- 
ton-based Sysco  maintains  an  army  of 
some  2,200  "marketing  associates" 
(Baugh's  words).  Two-thirds  of  that 
army  are  salesmen  whose  job  is  to 
assure  Sysco's  90,000  nationwide  cus- 
tomers that  98%  of  the  items  they 
order  will  be  delivered  on  time.  The 
rest  are  product  specialists,  prepara- 
tion specialists  and  customer-service 
representatives  who  do  everything 
from  preparing  restricted-diet  menus 
for  hospitals  to  explaining  how  to 
hold  stuffed  peppers  through  a  two- 
hour  luncheon  buffet. 

Naturally,  this  handholding  isn't 
free:  Sysco  is  usually  the  highest- 
priced  distributor  in  the  market.  And 
it  isn't  for  everyone:  A  burger  joint 
that  needs  only  a  handful  of  items  and 
no  advice  will  tend  to  go  elsewhere. 
But  the  willingness  of  Sysco's  cus- 
tomers to  pay  for  convenience  means 
that  Sysco  can  post  a  net  margin  of 
2%,  well  ahead  of  its  top  competitors' 
average  of  1.5%.  Sysco's  revenues — 
the  industry's  largest — have  been 
growing  18%  a  year  for  a  decade, 
largely  because  of  acquisitions  of  lo- 
cal food  distributors.  But  its  earnings 
for  the  same  period  have  increased 
22%  a  year.  Earnings  per  share  have 
grown  at  a  compound  annual  rate  of 
18%,  to  $1.71  in  the  fiscal  year  ended 
july  3.  Return  on  equity  has  averaged 
16.5%  with  moderate  leverage — debt 
hovers  around  25%  of  total  capital. 

Achieving  that  kind  of  growth 
means  walking  a  fine  line  in  a  busi- 
ness where  slow  food-price  escalation 
and  -stiff  competition  chip  away  at 
potential  profits  and  labor  costs  eat  up 
10%  of  sales.  But  Baugh,  66,  has  Presi- 
dent John  Woodhouse,  51,  handling 
the  finances  for  Sysco — the  name  is  a 
contraction  of  Systems  &.  Services 
Co. — which  today  has  69  distribution 
centers  in  45  states  serving  1 16  of  the 
top  150  metropolitan  areas.  Wood- 
house,  a  onetime  financial  man  at 
Ford  Motor,  keeps  receivables  down 
to  24  days'  sales — where  the  industry 
norm  is  around  35.  Sysco  headquar- 

President  Woodhouse  and  Chairman  Baugh  in  a  Sysco  test  kitchen 
Keeping  too  many  cooks  from  spoiling  the  frozen  beef  stew. 


FORBES,  OCTOBER  11,  1982 

ters  must  approve  all  subsidiaries' 
presidents'  salaries,  major  expendi- 
tures and  borrowings.  Salesmen  work 
on  commissions  that  are  set  locally, 
based  on  the  profitability  of  each  or- 
der, which  may  be  based  on  dollar  size 
and  frequency  of  delivery  as  well  as 
gross  profit. 

Sysco  started  life  in  1970  when 
Baugh — then  president  of  a  Houston 
company  called  Zero  Foods — and 
eight  other  regional  distributors  de- 
cided to  centralize  finances,  the  better 
to  expand  and  modernize.  Their  tim- 
ing couldn't  have  been  better,  as  eat- 
ing away  from  home  became  a  growth 
industry  in  the  1970s. 

Now,  however,  with  Americans 
spending  less  to  eat  out,  Baugh  and 
Woodhouse  are  looking  for  other 
ways  to  keep  Sysco  growing.  In  Febru- 
ary 1981  they  set  up  Compton  Foods 
in  Kansas  City  to  purchase  meat  and 
move  the  Sysco  15,000-item  product 
line  into  the  so-called  center  of  the 
plate — the  meat  and  prepared  entrees 
that  constitute  50  cents  of  every  food- 
service  dollar.  Sysco  had  shied  away 
from  meat  previously  because  Baugh 
and  Woodhouse  thought  the  subsid- 
iaries could  not  control  quality  or  get 
good  prices  from  meatpackers  accus- 
tomed to  selling  huge  lots  to  super- 
market chains. 

But  with  Sysco's  current  size, 
Compton  can  buy  in  truckload  and 
boxcar  lots  from  Iowa  Beef  or  Swift  & 
Co.  and  therefore  is  able  to  negotiate 
on  price.  Also,  as  a  good  customer, 
Compton  gets  the  right  to  send  its 
own  inspector  into  the  meatpackers' 
plant  to  check  quality.  Compton  con- 
tracts with  the  big  processors  for  pre- 
pared frozen  entrees — where  the 
watch  on  quality  must  be  exacting. 
"One  person  decides  he  can  shave  a 
few  pennies  by  putting  cheaper  meat 
in  the  beef  stew,"  explains  Wood- 
house.  "Another  decides  he  can  put  in 
more  potatoes,  and  before  you  know 
it,  a  perfectly  acceptable  dish  has  be- 
come garbage."  Baugh  and  Wood- 
house  think  sales  of  Compton-pur- 
chased  foods  just  to  existing  custom- 
ers could  add  as  much  as  $800  million 
to  sales. 

Limits  to  growth?  Baugh  and  Wood- 
house  want  to  move  into  the  34  met- 
ropolitan areas  where  Sysco  doesn't 
have  a  presence — but  they  are  as  care- 
ful with  their  expansion  plans  as  with 
the  frozen  beef  stew.  "We've  had  to 
walk  away  from  acquisitions  because 
we  didn't  have  the  people  to  keep 
track  of  them,"  admits  Woodhouse. 
Sysco's  secret?  Simple:  paying  atten- 
tion— to  costs,  to  resources,  and  to  a 
customer  needing  lobsters  at  5 
o'clock  on  Saturday.  ■ 

to  change 
a  forecast 

To  help  weather  the  storm 
of  economic  variables,  a  person 
could  use  the  IBM  Personal 
With  software  like  VisiCalc* 
(really  an  "electronic  worksheet")  you 
can  calculate  up  to  63  columns  and 
254  rows  of  numbers  —  implementing 
formulas  and  changing  labels 
as  you  go. 

You  can  also  plan  on  the  IBM 
Personal  Computer  to  help  create  a 
sales  forecast.  Spot  a  trend.  Test  a 
budget.  And  aid  you  on  the  quest  for 
the  right  answer  to  "what  if?" 

Now,  don't  wait  for  a  rainy  day 
to  visit  an  authorized  IBM  Personal 
Computer  dealer. 

\bu'll  learn  that  the  quality, 
power  and  performance  of  this  tool  are 
what  you'd  expect  from  IBM. 
The  price  isn't. 

The  IBM  Personal  Computer 
A  tool  for  modern  times 

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In  Alaska  or  Hawaii,  (800)  447-0890.  *  VisiCalc  is  a  trademark  of  VisiCorp 

FORBES,  OCTOBER  11,  1982 

The  Up  &  Comers 

How  the  Japanese  forced  people  much  like 
those  in  Our  Town  to  change  the  way  they 
did  business— for  the  better. 

"This  was 
the  only  business 

we  had 


By  Paul  B.  Brown 

Up  until  the  1970s  or  there- 
abouts, life  in  Peterborough, 
N.H.  (pop.,  4,897)  was  pretty 
much  the  way  Thornton  Wilder  de- 
scribed it  back  in  1938.  Peterborough, 
they  say,  was  the  inspiration  for 
Wilder's  Our  Town,  a  place  described 
as  "an  ordinary  town.  A  little  better 
behaved  than  most.  Probably  a  lot 
duller."  Just  after  WWII,  Arthur  Dan- 
iels, an  engineer  from  San  Pedro,  Calif., 
had  started  a  company  called  New 

Hampshire  Ball  Bearings,  Inc.  in 
Peterborough  because  he  liked  the  ru- 
ral setting  and  the  work  ethic  of  the 
natives.  Back  then,  there  wasn't  a  traf- 
fic light  in  town,  and  work  at  NHBB 
consisted  of  one  person's  sitting  at  a 
table  placing  steel  balls  in  metal  rings. 
Today  there  still  isn't  a  traffic  light 
downtown,  but  Japan  and  its  work 
ethic  have  changed  Peterborough's 
ball-bearings  business  forever. 

It  all  began  during  the  Vietnam 
buildup,  says  Theodore  Kanell,  59, 
NHBB  president,  when  "there  was  a 

heavy  burden  placed  on  small  mili- 
tary suppliers  like  ourselves.  It  used 
to  be  that  we  would  ship  four  to  six 
weeks  after  getting  an  order.  Well, 
during  Vietnam  our  lead  time  went  to 
35  or  40  weeks.  And  customers,  of 
course,  couldn't  tolerate  that.  It  was 
at  that  time  that  the  Japanese,  with 
their  exquisite  timing,  came  in  and 
said,  'We  can  deliver  those  products 
off  the  shelf  overnight.  Moreover,  our 
price  will  be  30%  less  than  you  cur- 
rently pay.'  The  offer  was  absolutely 
irresistible.  When  things  in  Vietnam 
subsided,  we  looked  around  and  found 
that  Japan  had  cornered  about  40%  of 
the  market.  It  had  happened  virtually 
overnight.  That  was  1971,  the  only 
time  this  company  took  a  loss." 

Japan's  decision  to  make  high-vol- 
ume, low-grade  miniature  ball  bear- 
ings, which  are  used  in  virtually  every 
type  of  computer  and  office  equip- 
ment, drove  out  each  of  the  half-doz- 
en companies  that  had  been  compet- 
ing with  NHBB. 

"Companies  like  MPB  in  Keene, 
N.H.  [a  division  of  Wheelabrator- 
Frye),  Fafnir  Corp.  [part  of  Textron] 
and  MRC  [a  division  of  TRW]  grunted 
and  withdrew  to  make  other  kinds  of 
bearings,"  Kanell  recalls.  "We 
couldn't  withdraw,  this  was  the  only 
business  we  had." 

What  NHBB  did  instead  was  copy 

New  Hampshire  Ball  Bearings  President  Theodore  Kanell 

"We  looked  around  and  saw  the  Japanese  had  40%  of  the  market. 

NfJBB's  dust-free  assembly  room 

"When  people  hear  we  are  in  Peterbo 


FORBES,  OCTOBER  11,  1982 

How  to  move 

a  paragraph. 

For  memos  or  manuscripts,  sales 
reports  or  book  reports,  a  person  could 
use  the  IBM  Personal  Computer. 

Because,  with 
the  EasyWriter* 
JL  software  program, 
creating,  revising 
and  storing  text  is 
just  that.  Easy. 
With  ten  function  keys  that  help 
save  time  on  repetitious  tasks  and 
"menus"  that  guide  you  along,  the 
IBM  Personal  Computer  can  insert 
a  clause.  Delete  a  line.  Move  a 
paragraph  from  one  page  to 
another.  Transfer  text  from  file  to 
file.  Even  merge  words  from  your 
EasyWriter  program  with  numbers 
generated  by  your  VisiCalcf  program. 

And  when  you're  done,  a  copy 
of  the  finished  product  can  be  printed 
out  at  80  characters  a  second. 

So  if  you  do  any  kind  of  writing, 
try  it  on  the  IBM  Personal  Computer 
at  your  nearest  authorized  dealer. 
\bu'll  see  that  the  performance,  quality 
and  price  are  really  something  to 
write  home  about. 

The  IBM  Personal  Computer 
A  tool  for  modern  times 

For  a  store  near  you  (or  for  information  from  IBM  about  quantity  purchases)  call  800-447-4700.  In  Illinois, 

800-322-4400.  In  Alaska  Or  Hawaii,  800-447-0890.  »  EasyWriter  is  a  trademark  ot  Information  Unlimited  Software,  Inc. 

t  VisiCalc  is  a  trademark  of  VisiCorp 





World's  Finest 
Chocolate,  Inc.  saw 
opportunity  in  St.  Lucia. 
With  OPIC's  unique 
political  risk  insurance, 
they  saw  a  promising 
place  to  start  a  cocoa 

)  1982  Dancer  Fitzgerald  Sample.  Inc..  NY.  NY 

We're  OPIC:  the  Overseas  Private  Invest- 
ment Corporation.  And  we  can  help  make 
overseas  expansion  both  safe  and  profit- 
able. We  did  it  for  World's  Finest  Chocolate 
of  Chicago.  We  can  do  it  for  you. 

We  specialize  in  political  risk  insurance. 
Insurance  against  loss  due  to  war,  revolu- 
tion, insurrection,  civil  strife.  Expropriation, 
nationalization,  confiscation.  Or  the  inability 
to  convert  local  currency  into  U.S.  dollars- 
all  on  a  long-term  basis.  We  also  offer  finan- 
cing—through direct  loans  or  loan  guaran- 
tees. We  can  share  in  the  cost  of  feasibility 
studies.  And  alert  businessmen  to  specific 

opportunities  in  certain  countries. 

Like  you,  we're  business-oriented. 
And  we're  backed  by  our  own  substantial 
resources  and  by  the  full  faith  and  credit  of 
the  United  States.  So  if  you've  been  thinking) 
of  overseas  investment,  we  can  help  make 
it  economically  successful  for  you  — and  for 
the  host  country. 

Call  toll  free:  800-424-6742.  Or  write:  OPIC, 
1129  20th  Street  N.W,  Washington  D  C  2052| 

OPIC.  We  mean  business 
all  over  the  world. 

The  Up  &  Comers 

coupled  with  the  cost  of  adding  the 
new  computer  equipment,  took  its 
toll  on  the  balance  sheet.  Capital  ex- 
penditures increased  from  $240,000 
to  $4.7  million  between  1972  and 
1979.  So,  while  the  company  man- 
aged to  double  sales  from  $11  million 
to  $21  million  between  1972  and 
1976,  return  on  equity  was  only  7%. 
The  switch  to  high-tech  bearings 
"was  a  long,  evolutionary  process/' 
says  Kanell  simply.  But  it  eventually 
worked,  primarily  for  three  reasons. 

By  1978,  NHBB  was  getting  invited 
to  bid  on  projects  along  with  Rolls- 
Royce  competition,  and  it  was  win- 
ning its  share,  partially  on  quality  and 
partially  on  speed.  "You'll  notice  that 
all  of  our  competition  is  now  a  divi- 
sion of  someone  else,"  Kanell  says. 
"While  that  means  you  have  access  to 
the  parent  company's  capital,  you  pay 
for  that  in  terms  of  how  long  it  takes 
you  to  respond  to  an  opportunity.  I 
can  be  walking  through  the  sales  floor 

"We  had  the  reputation  of 
being  a  high-volume,  low- 
cost  house.  We  were  good  if 
you  wanted  a  Chevrolet,  hut 
if  you  wanted  a  Rolls-Royce 
you  went  elsewhere." 

and  one  of  our  people  will  be  on  the 
phone  with  a  customer  offering  us  a 
job  at  a  specific  price.  While  the  cus- 
tomer is  still  on  hold,  the  salesman  can 
ask  me  what  I  think  and  we  can  decide 
then  and  there  if  we  want  the  job," 
says  Kanell,  who  started  with  NHBB 
26  years  ago  as  a  sales  engineer.  "There 
have  been  cases  where  we've  shipped  a 
prototype  before  our  competition 
could  decide  whether  or  not  it  wanted 
to  bid  on  the  job." 

Another  key  decision  made  by 
Chairman  Daniels,  an  Annapolis 
^graduate,  was  to  go  after  the  high-tech 
jjmilitary  and  aerospace  market,  in- 
stead of  going  after  larger  equipment. 
The  move  to  high  tech  freed  NHBB 
from  head-on  competition  with  the 
Japanese.  The  precision  ball  bearings, 
with  higher  engineering,  boosted  mar- 
igins.  Now  50%  of  the  company's 
iwork  is  done  for  the  military.  There  is 
a  full-time  government  inspector  at 
the  company's  plant  in  Peterborough, 
and  NHBB  has  built  a  5,000-square- 
toot,  dust-free  room  in  which  employ- 
ees wear  space  suits  and  have  to  pass 
through  an  air  shower  to  enter. 
"When  people  hear  we  are  in  Peter- 
borough, they  picture  some  back- 

FORBES,  OCTOBER  11,  1982 

How  to  balance 
the  books. 

To  maintain  a  strong  foothold  in  financial 
and  accounting  matters,  a  businessperson  could  use 
the  IBM  Personal  Computer. 

It  helps  with  accounts  payable  by 
generating  everything  from  vendor 
files  to  month-end  credit  records. 

It  saves  time  on  accounts 
receivable  by  printing  invoices  and 
:onsolidating  multiple  transactions. 
The  computer  even  writes  checks. 
And  it  uses  general  ledger 
packages  that  improve  control 
and  productivity  today,  so 
you  won't  be  off  balance 
lb  get  an  in-depth  account 
of  programs  from  both  Peachtree 
Software  Inc.  and  BPI  Systems, 
Inc.,  visit  an  authorized  IBM  Personal 
Computer  dealer. 
\bu'll  find  the  quality  of  the  IBM  Personal 
Computer  is  what  you'd  expect. 
The  price  isn't.  =■ ' 

The  IBM  Personal  Computer 
A  tool  for  modern  times 

For  a  store  near  you  (or  information  from  IBM  about  quantity  purchases)  call  (800)  447-4700.  In  Illinois,  (800)  322-4400. 
In  Alaska  or  Hawaii,  (800)  447-0890. 

This  is  another  image  of  the  nation 
that  is  the  world's  largest  exporter  of  coffee. 

Brazil  is  noted  for  being  the 
world's  largest  coffee  exporter. 
But  the  Brazilian  economy 
doesn't  grow  and  thrive  on  coffee 
exports  alone. 

Last  year,  more  than  half  of 
Brazil's  23  billion  U.S.  dollars 
in  exports  consisted  of  industrial 
products  and  sophisticated 
services.  Compare  this  with  1970, 
when  exports  totaled  a  mere 
2.748  billion  U.S.  dollars. 
Today,  thanks  to  this  nation's 
development  of  economical, 
efficient  hydroelectric  power  - 
with  a  potential  estimated  at 
213,000  MW  -  Brazil  ranks  as  one 
of  the  ten  most  heavily  indus- 
trialized nations  in  the  West. 
Between  1970  and  1980, 
agricultural  production  increased 
66.77o.  And  now,  Brazil  is  close 

to  becoming  the  second  largest 
food  exporter  in  the  world. 
In  addition,  Brazil  also  exports 
planes,  ships,  shoes, 
canned  sweets,  textiles,  diverse 
technology...  and  many  other 
products  and  services  to 
key  markets  spanning  the  globe. 
In  recent  years,  the  average 
yearly  increase  in  Brazil's  Gross 
National  Product  has  been  one 
of  the  highest  in  the  world.  And, 
per  capita  income  in  1981  was  in 
the  area  of  1,990  U.S.  dollars. 
Brazil  has  a  national  territory  of 
8  1/2  million  square  kilometers 
and  a  population  of  120  million, 
half  under  20  years  of  age. 
Gross  savings  are  equal  to  25% 
of  the  GNP. 

And,  to  keep  pace  with  all  this 
development,  Brazil  has  a  great 
bank  with  70  agencies  abroad 
and  2,000  branches  within 

the  nation's  borders.  That  bank 

is  Banco  do  Brasil. 

Since  it  opened  its  first  overseas 

agency  in  1941,  Banco  do  Brasil 

has  been  a  principal  link  between 

foreign  investors  and  Brazilian 


Today,  Banco  do  Brasil  stands  as 

the  main  financial  agent 

of  Brazil.  With  its  help,  you  can 

discover  all  of  Brazil's  financial 

potential  in  the  areas  of  business 

dealings,  investments, 

and  mutually  profitable  joint 

ventures  with  your  Brazilian 



\bur  gateway  to  business  in  Brazil. 


The  Up  &  Comers 

woods  operation  where  employees 
work  in  leather  aprons,"  Kanell  says. 
"It  isn't  quite  the  case." 

The  Japanese  can  be  credited  for  the 
final  component  of  NHBB's  success. 
By  driving  all  but  NHBB  from  the 
high-volume,  low-cost,  miniature- 
ball-bearing  market,  Japan  left  Ameri- 
can manufacturers  with  only  one 
choice  if  they  wanted  to  buy  Ameri- 
can— a  growing  concern  for  both  man- 
ufacturers and  the  military.  With  the 
explosion  of  the  personal  computer 
market  (Forbes,  Feb.  J 5  and  Aug  2), 
finding  a  domestic  manufacturer  has 
become  important.  "These  guys  (the 
computer  manufacturers)  are  con- 
cerned about  Japan  copying  what  they 
have  done.  This  gives  us  an  edge." 

It  also  gives  NHBB  rapidly  increas- 
ing sales.  Primarily  on  the  strength  of 
the  computer  market,  in  the  last  two 

"There  have  been  cases 
where  we've  shipped  a  pro- 
totype before  our  competi- 
tion could  decide  whether 
or  not  it  wanted  to  bid  on 
the  job." 

years  NHBB's  sales  increased  36%,  to 
$60.6  million.  Over  the  last  five  years 
the  company  has  averaged  a  16.3% 
return  on  equity  on  relatively  little 
debt — 25%  of  total  capital — and  earn- 
ings per  share  have  increased  70%. 

The  question  is  where  to  go  from 
here.  The  small-ball-bearing  market 
is  estimated  to  be  about  $350  million 
a  year.  So,  even  with  the  $140  million 
held  by  the  Japanese,  NHBB  has  some 
room  to  grow,  but  not  enough  to  satis- 
fy Kanell.  So  he  is  looking  to  three 
new  directions. 

"If  you  make  a  ball  bearing  ivith  its 
assembly  you  are  talking  about  a  $70 
item,  as  opposed  to  $12  for  just  the 
bearings,"  Kanell  says.  "Also,  if  a  cus- 
tomer is  buying  from  NHBB  ball  bear- 
ings contained  in  an  assembly,  when 
it  looks  for  replacement  parts  it  will 
not  be  looking  for  just  the  bearings." 

Then  there  are  acquisitions.  The 
company  is  sitting  on  more  than  $4 
million  in  cash,  has  reduced  long- 
term  debt  to  just  19%  of  total  capital 
and  has  a  $4  million  line  of  bank 
credit.  What  is  Kanell  looking  for?  "A 
small  metal-working  shop  that  makes 
small  gears,  for  example,  would  fit," 
he  says.  Further  in  the  future  is  a  plan 
to  move  into  bigger  bearings,  but  this 
would  be  a  costly  step,  since  the  com- 
pany's current  line  stops  with  bear- 

FORBES.  OCTOBER  1  1,  1982 

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tNot  supplied  by  IBM. 


The  Mercedes-Benz  300DTurbodiesel: 
Americas  best -performing  diesel  is  also  one 
of  the  worlds  most  civilized  sedans. 

A  diesel  that  loves  hills  and  sprints  away  from  stoplights ...  a  sedan  that  laps  up 
sports  car  roads.  The  300  D  Turbodiesel  is  both.  Meanwhile,  it  coddles  you  and  your 
passengers  in  that  secure  comfort  unique  to  the  automobiles  of  Mercedes-Benz. 

i  ^"ercedes-Benz  engineers 
.  V  A  have  extracted  more  sheer 
•ower  from  the  300  D  Turbo- 
iesel  Sedan's  five-cylinder 
ngine  than  any  other  engi- 
eers  have  yet  extracted  from 
ny  other  passenger  car  diesel, 
|uge  domestic  V-8's  included. 
'  Their  secret  was  to  couple  an 
idvanced  engine  design  with  a 
jower-boosting  turbocharger. 
ven  other  turbocharged  diesels 
re  left  flatfooted;  this  spacious, 
jlid,  3585Tb.  five-passenger 
lercedes-Benz  sedan  ranks  as  the 
est  performer  of  any  diesel  auto- 
lobile  sold  in  America. 

The  300  D  Turbodiesel  is  mean- 
hile  perhaps  the  most  conscientious 
erformance  automobile  in  Amer- 
a,  because  it  is  so  inherently  effi- 
ent  that  EPA  figures  show[27|mpg 
ty  estimated  and  33  highway*  An 
most  uncanny  balance  of  power 
id  frugality  is  thus  struck. 

So  exotic  is  engine  technology 
lat  the  interior  of  each  moving 
iston  is  constantly  cooled  by  pre- 
sely  timed  jets  of  oil.  But  deep 
3wn  this  is  still  a  diesel:  a  rugged, 
liability-minded  diesel  that  will 
ever  require  a  conventional 
me- up. 

Do  not  disturb 

liquid-smooth  and  seemingly  fric- 
tionless.  The  shift  lever  is  mounted 
down  on  the  transmission  tun- 
nel-but look  again.  The  quadrant 
reads  P-R-N-D-S-L.  It  is  no  mere 
automatic  but  a  four-speed  auto- 
matic, and  is  designed  to  serve 
equally  well  when  shifted  by  hand. 
America's  most  advanced  automo- 
tive braking  system  is  four-wheel 
disc  braking.  An  11-inch  disc  brake  is 
fitted  to  every  wheel  of  every  300  D 
Turbodiesel  Sedan. 

Mercedes-Benz  engineers  care  lit- 
tle if  the  outside  world  knows  that 
total  swept  brake  area  is  a  massive 
456.5  square  inches,  or  that  the 
300  D's  front  suspension  geometry 
is  devised  to  help  minimize  front- 
end  "nose  diving"  in  hard  stops. 
Their  main  concern  is  that  the  driver 
is  better  served  by  these  and  myriad 
other  technical  flourishes. 

Designed,  not  decorated 

Even  when  fully  padded  and 
finished,  the  interior  of  the  300  D's 
welded  steel  body  shell  measures 
almost  five  feet  in  width-sufficient 
to  easily  accommodate  three  adults 
in  the  rear  seating  area,  for  example. 
Electronic  cruise  control,  AM/FM 
stereo  radio/cassette  player,  auto- 
matic climate  control  system  and 
electric  window  lifts-whatever 
conventional  luxury  sedans  furnish 
by  way  of  real  conveniences,  so 
does  this  sedan. 

Garishness,  however,  is  absent. 

The  instrument  panel  is 
no  entertainment  center  twin- 
kling with  gadgetry  but  an 
exercise  in  ergonomics,  meant 
to  ease  the  driver's  task  by 
simplifying  it. 

The  engineers  continuously 
strive  to  make  driver  controls 
fewer  and  less  awkward  to 
use,  and  so  reduce  driving 
complexity.  Item:  the  single 
steering-column  lever  that  lets 
you  perform  nine  different  driv- 
ing functions-without  taking  your 
hands  off  the  wheel. 

Seats  are  not  designed  to  look  lux- 
urious but  to  so  support  your  body 
that  you  feel  relaxed,  even  after  an 
all-day  drive. 

Interior  wood  trim  is  genuine 
wood  from  the  Mercedes-Benz 
shops,  handworked  and  fitted  and 
finished.  A  small  thing,  but  it  epito- 
mizes this  car's  unremitting  honesty 
of  character-as  its  120  built-in  safety 
features  epitomize  its  seriousness  of 

The  luxury  of  retained  value 

The  300  D  Turbodiesel  boasts  a 
final  and  powerful  distinction.  As  a 
Mercedes-Benz,  it  shares  a  name  so 
coveted  by  American  buyers  today 
that  after  the  first  three  years,  the 
entire  Mercedes-Benz  tine— not  just  a 
few  isolated  models-has  been 
shown  to  retain  an  average  of  84 
percent  of  original  value. 

If  retained  value  is  a  form  of  lux- 
ury, then  perhaps  the  300  D  Tur- 
bodiesel is,  after  all,  a  luxury  car. 
*EPA  estimate  for  comparison  purposes. 
The  mileage  you  get  may  vary  with  trip 
length,  speed  and  weather.  Actual  high- 
way mileage  will  probably  be  less. 

©1982  Mercedes-Benz  N.A.,  Inc.,  Montvale,  N.J. 

Engineered  like  no  other 
car  in  the  world 

The  Up  &  Comers 

ings  just  under  3  inches  in  diameter. 
"To  move  into  larger  bearings  would 
ultimately  cost  $30  million  to  $40 
million  for  equipment,"  he  says. 

That  could  be  paid  for  by  suitors 
who  are  forever  dropping  by.  "We  are 
courted  almost  constantly,"  Kanell 
says.  "And  these  big  companies  can 
be  mighty  persuasive."  But  not  per- 
suasive enough  to  convince  Daniels, 
who  with  his  wife  owns  about  18%  of 
the  stock,  controls  another  5%  or  so 
and  without  whom  a  takeover  would 
be  difficult.  But  Daniels  is  73,  not  in 
the  best  of  health  and  has  a  strict  rule 
against  nepotism. 

What  happens  when  Daniels  is  no 
longer  in  the  picture?  The  general  feel- 
ing within  the  company  is  that  it  will 
finally  be  acquired.  "It  might  be  inevi- 
table," Kanell  says  sadly.  When  you 
are  small,  make  the  right  decisions  and 
don't  control  the  stock,  that  is  often 
the  price  you  have  to  pay.  Thornton 
Wilder  would  have  understood. 

Borrowing  the 
Midas  touch 

W-  e  didn't  invent  the  wheel,"  says 
Victor  Loscalzo,  "we  just  pointed 
the  wheel  in  the  direction  it's  going  to 
go."  If  you  substitute  tail  pipe  for 
wheel,  you  can  understand  what  Lo- 
scalzo, president  of  Superior  Muffler 
Centers,  Inc.,  is  talking  about.  Superi- 
or is  taking  aim  at  Midas,  which 
dominates  the  $3  billion  (annual  re- 
tail sales)  exhaust-repair  business. 

Superior  differs  from  typical  fran- 
chise operations  because  it  seeks  out 
automotive  service  businesses  al- 
ready in  operation — gas  stations,  auto 
parts  outlets,  new-car  dealers,  tire 
dealers,  even  car  washes — and  helps 
them  convert  some  facilities  into 
minispecialty  shops  for  exhaust-re- 
pair work.  It  costs  only  about  $15,000 
to  make  the  conversion  and  become  a 
dealer,  and  Superior  will  help  finance 
that.  Dealers  get  branded  mufflers  and 
pipes  25%  to  35%  cheaper,  plus  ad- 
vertising and  promotional  assistance 
and  a  pipe-bending  machine  so  they 
can  reduce  inventory  costs  by  cus- 
tom-bending tail  pipes  for  each  job 
instead  of  having  to  store  countless 
varieties  of  prebent  pipes.  To  top  it 
off,  Superior  gives  them  a  lifetime 
guarantee  on  all  replacement  parts 
and  labor.  In  these  days  of  gasoline 
glut,  Superior's  offer  has  a  lot  of  ap- 
peal to  the  troubled  service-station 
owner.  He  can  make  profitable  use  of 
that  idle  service  bay  for  a  low  capital 

Victor  Loscalzo  of  Superior  Muffler 
Bigger  in  dealers,  but  not  in  dollars. 

investment.  There's  practically  no 
new  overhead  created.  Best  of  all,  Su- 
perior takes  relatively  little  once  the 
franchise  is  in  operation.  The  com- 
pany charges  just  8%  of  the  gross  on 
exhaust  jobs  for  co-op  advertising.  Su- 
perior makes  almost  all  its  money 
from  parts  sales. 

By  comparison,  a  Midas  muffler 
franchise  is  far  costlier.  Recent  start- 
ups for  Midas  dealerships,  which 
must  be  freestanding  shops  dedicated 
solely  to  exhaust  and  brake  work,  run 
around  $350,000  or  more,  including 
about  $135,000  up  front  for  equip- 
ment, inventory  and  working  capital. 
Then  Midas  takes  10%  of  the  shop's 
entire  pretax  gross  for  royalties  and 
advertising.  And  the  Midas  parts-and- 
labor  guarantee  applies  only  to  muf- 
flers, not  to  pipes  and  fittings. 

With  that  kind  of  difference  in 
startup  costs,  it  should  be  no  surprise 
that  Superior  passed  Midas  in  num- 
bers of  dealers  in  1977,  four  years  after 
it  started.  Today  it  has  2,300  dealers 
in  the  U.S.  and  Canada,  compared 
with  about  1,300  shops  for  Midas,  and 
is  adding  almost  two  for  every  one 
Midas  adds.  Does  that  mean  that  Su- 
perior is  bigger?  Not  by  a  long  shot. 
The  dollar  volume  of  Midas'  retail 
repair  work  last  year  was  substantial- 
ly higher  than  $250  million.  Superi- 
or's was  about  $100  million.  Even  so, 
last  year  Superior  netted  $2  million 
on  parts  sales  of  $18  million,  up  more 
than  30%  over  the  year  before. 

That  growth  should  continue  for  a 
while.  Thousands  of  service  stations, 
oil-company  franchisees  and  repair 
shops  will  close  in  1982,  a  continu- 
ation of  a  trend  that  has  seen  35%  of 
the  nation's  226,000  service  stations 
close  since  1972.  For  many  such  busi- 
nesses, the  cheap  diversification  that 

Superior  offers  could  make  a  life-and- 
death  difference.  If  Superior  manages 
to  get  its  goal  of  6%  of  the  total  retail 
exhaust-repair  work  over  the  next  five 
years,  that  would  mean  about  $70 
million  in  wholesale-parts  sales. 
From  there  Loscalzo  wants  to  branch 
out  to  Europe  and  increasingly  into 
brake  jobs,  product  additions  and 
sales  of  hydraulic  lifts  and  other  facili- 
ties. "We  can  sell  practically  anything 
to  our  network  of  dealers,"  he  says. 
"We're  really  a  national  cooperative 
buying  system,  doing  for  service  sta- 
tion owners  what  the  oil  companies 
should  have  done  for  them  many 
years  ago." 

Financing  those  ambitions  may  be 
tough.  People  may  be  using  Superior 
outlets  because  they're  driving  their 
cars  longer,  but  they  are  also  making 
more  claims  against  its  uncommonly 
generous  warranty.  Last  year  that 
meant  over  half — $  1 .2  million — of  Su- 
perior's profits  were  sliced  off  the  bot- 
tom line.  That  brought  the  profit  mar- 
gin down  from  11.1%  to  4.4%.  Still, 
Loscalzo  intends  to  maintain  Superi- 
or's guarantee  policy,  stressing  it 
helps  make  him  different  from  Midas. 
You  have  to  wonder  how  long  he  can 
afford  to  do  that  and  remain  private.  It 
is  one  thing  to  outmarket  the  giants 
in  your  field;  making  money  while 
doing  it  is  harder. — Steven  Flax 

Handing  over 
the  payroll 

Bill  Ingraham  was  so  concerned 
about  losing  employees  from  his 
commercial  printing  company  in 
Cortland,  N.Y.  that  he  fired  all  nine  of 
them.  They  were  delighted,  he  says, 
and  nowadays  business  is  just  fine, 
thank  you. 





C  O  N  R  A  II 


Can  you  spot  the  five  cars  headed  for  Wyoming? 

rhe  mind-boggling  job  of  keeping  track 
3f  trains  in  a  switching  yard  is  handled 
3y  a  giant  computer  console. 

rhis  computer  receives  its  signals  over 
Dur  3M  Scotchflex  Cable/Connector 
System.  It's  a  color-coded  system  of 
;ables,  connectors,  assembly  equipment 
and  accessories  that  puts  complex 
nstallations  on  a  fast  track. 

By  listening  to  peoples  needs,  we've 
□ioneered  over  600  products  to  serve 

the  needs  of  the  electronics  and 
electrical  manufacturing  industries. 

We've  developed  everything  from 
magnet  materials  for  computers  to 
components  that  protect  transformers 
from  ruinous  overheating. 

All  because  at  3M,  we're  in  the  business 
of  hearing.  So  let  us  hear  from  you. 

3M  hears  you... 

For  your  free  3M  Electronics/Electrical 
Manufacturing  Brochure,  write: 
Department 030210/3M,  P.O.  Box 4039, 
St.  Paul,  MN  55104. 



_  State 


Or  call  toll-free:  1-800-323-1718, 

Operator  363.  (Illinois  residents  call 



SmithKline  Beckman  Corporation/World  Headquarti 

When  world  leaders  in  technology  unite, 
the  results  are  worth  watching. 

SmithKline  and  Beckman  Instruments, 
both  converging  on  answers  to  key  challenges  in 
health  care  and  human  well-being,  are  now 
SmithKline  Beckman  Corporation. 

Through  innovation,  our  businesses  have 

achieved  combined  compound  annual  growth 
rates  of  25%  in  net  earnings  and  19%  in  sales 
from  1972  through  1981 .  In  1982,  sales  will  sur- 
pass $3  billion  and  we'll  reinvest  a  quarter  billic 
dollars  in  R&D,  planning  sustained  growth  in 
sales  and  earnings  for  years  to  come. 

Look  into  two  of  the  many  worlds 



One  Franklin  Plaza/Philadelphia,  PA  19101 

mithKline  Beckman: 

In  Eye  Care,  we  hold  first  place  in  the  U.S. 
thalmic  and  contact  lens  accessories  market. 
Edition,  we're  exploring  ophthalmological 
lications  for  our  unique  expertise  in  histamine 
peptide  technologies.  In  the  eye  above,  a 
er  chemical  helps  monitor  glaucoma-related 



In  Physiological  Monitoring,  we  continue  to 
innovate  precision  systems  for  clinicians  and 
researchers.  One  of  some  6,000  Beckman  prod- 
ucts is  the  automated  unit  above,  for  assessing 
metabolic  and  respiratory  variables. 

Look  into  SmithKline  Beckman.  And  look 
into  the  future. 

How  dareThe  Glenlivet 
be  so  expensive? 

How  dare  we  place  such 
a  premium  on  our  12-year-old 
Scotch?  The  same  reason  vintage 
wines  and  fine  cognacs  are  so 
expensive.  Superior  taste.  Just 
one  sip  and  you'll  know  that 
The  Glenlivet  has  a  taste  that's 
decidedly  superior. 

The  Glenlivet  is 
Scotland's  first  and  finest  single 
malt  Scotch.  Nothing  but 
100%  Highland  malt  whisky, 
distilled  from  natural  spring 
water  and  fine  malt  barley, 
aged  in  oaken  casks,  just  as  it 
always  has  been. 

Only  our  time-honored 
methods  can  truly  achieve 
The  Glenlivet's  unequaled  taste. 
A  taste  that  sets  it  apart.  Its 
smoothness,  body  and  bouquet 
are  qualities  found  only  in  this 
unique  Scotch. 

Of  course,  you  may  elect 
to  purchase  a  good  Scotch  that's 
less  expensive.  But  for  a  truly 
superior  taste,  you  have  to  pay 
the  greater  price. 

The  Glenlivet 

12-year-old  unblended  Scotch. 
About  $20  the  bottle. 


Ingraham's  staff  is  now  employed 
by  Paystaff,  Inc.,  a  novel  employee- 
leasing  firm  that  may  be  too  good  to 
be  true.  You  can't  fault  Carmen  Arno 
Jr.,  owner  of  the  $6  million  (projected 
1982  sales)  Los  Angeles  venture,  for  a 
lack  of  courage.  Three  years  ago  the 
38-year-old  accountant  decided  that  a 
lot  of  small  businessmen  would  pay 
him  to  take  care  of  the  headaches  of 
employee  administration — pensions, 
withholding,  insurance,  even  raises, 
hirings  and  firings.  He  was  right. 
More  than  300  business  owners — 
most  of  them  in  California,  New 
York  and  Texas — have  turned  their 
workers  over  to  Paystaff,  which  pays 
their  salaries,  handles  their  benefits, 
even  counsels  them  on  matters  like 
personal  bankruptcy.  Paystaff  then 
leases  them  back  to  the  small  busi- 
ness owners,  who  retain  control  of 
the  business. 

What's  in  it  for  Paystaff?  By  pooling 
more  than  1,500  workers,  Arno  econ- 
omizes on  benefits.  Programs  like 
self-insurance  and  preventive  health 
care  further  reduce  his  expenses. 
Whereas  the  average  firm  spends  37% 
of  its  payroll  on  benefits,  Arno  says  he 
can  do  it  for  30%.  Including  his  5% 
fee,  Arno  claims  to  offer  his  service  at 
about  the  same  cost  as  current  pay- 
roll, despite  a  benefit  package  with 
such  plums  as  $2  prescriptions  and 
adoption  counseling.  He  netted  2% 
on  sales  of  $1.9  million  last  year,  and 
expects  about  the  same  margin  for  his 
projected  sales  of  $6  million  this  year. 
"The  key, "  he  says  in  a  notable  under- 
statement, "is  keeping  costs  down." 

Ingraham,  who  figures  Paystaff 
costs  him  only  6%  more  than  his  pay- 
roll did,  is  happy  now  that  his  benefits 
at  Cortland  Press  exceed  those  at  the 
unions  that  once  were  so  tempting. 
And  in  Minnesota,  where  the  North- 
field  Medical  Clinic  is  the  only  Pay- 
staff  company,  the  owners  and  work- 
ers are  also  content.  "We  have  a  good 
benefit  plan — better  than  we  had  be- 
fore," says  the  office  manager.  "Oth- 
erwise there's  no  feeling  of  change. 
And  we  still  have  the  office  Christ- 
mas party."  Indeed,  only  two  clients 
have  left  Paystaff,  and  one  of  those 
was  asked  to  do  so. 

But  Arno  admits  that  rising  premi- 
ums from,  say,  a  blowout  in  a  self- 
insurance  plan  would  force  him  to 
raise  his  fee.  With  a  margin  of  only 
2%,  there's  no  room  to  maneuver. 
Trouble  is  you  can  raise  the  fee  only 
so  much  before  the  cost  outweighs 
the  benefits.  For  existing  Paystaff  cli- 
ents, however,  getting  out  may  be 
tough,  once  employees  understand- 
ably get  used  to  benefits  the  company 
can't  afford. — Robert  McGough 

The  Up  &  Comers 

After  years  of  red  ink,  BJ.  McRae  hit  it  big 
in  combat  boots.  Now  he's  expanding,  in 
the  face  of  overcapacity. 


By  John  A.  Byrne 

Branson  J.  McRae  well  remem- 
bers the  day  in  1967  when  op- 
portunity knocked.  At  a  meet- 
ing in  Philadelphia  a  military  procure- 
ment officer  told  some  40  footwear 
manufacturers  that  the  government 
would  no  longer  accept  combat  boots 
with  stitched-on  soles  and  heels.  The 
boots  didn't  hold  up  against  the  wet 
and  marshy  fields  of  Vietnam.  So  the 
government  wanted  boots  with  mold- 
ed rubber  bottoms. 

"I  was  there  and  I  heard  what  the 
man  said,"  recalls  McRae  in  a  Caroli- 

na drawl.  "He  said,  'You  contractors 
can  write  all  the  letters  you  want  to 
your  senators  and  congressmen.  You 
can  whine  and  moan  and  bitch.  But 
those  of  you  who  change  over  will  get 
the  business,  and  those  of  you  who 
don't  won't  get  no  business.'  " 

McRae,  a  62-year-old  with  a  mane 
of  white  hair,  was  all  smiles  when  he 
heard  the  news.  For  almost  seven 
years  his  McRae  Industries  in  tiny  Mt. 
Gilead,  N.C.  had  been  churning  out 
children's  shoes  with  molded  soles 
and  heels.  He  may  not  have  earned  a 
dime  for  years,  but  he  had  a  rubber 
mill  at  his  plant  and  had  the  molding 

Branson  J.  McRae  of  McRae  Industries 

"Just  hang  in  there,  buddy,  those  who  get  impatient  will  sell  out  cheap. 

FORBES.  OCTOBER  11.  1982 


The  more 

your  company  rents, 

the  Thriftier  we  get. 

Thrifty  starts  off  being  thrifty.  Our  airport  pickup  service  saves 
you  money  even  the  first  day.  When  you  rent  for  two,  three  days 
or  more,  we  save  you  a  lot  of  money. 

When  you  multiply  that  by  all  the  days  your  people  rent 
cars  in  a  year,  you  can  put  the  result  straight  into  your  profit 

And  a  Thrifty  Special  Account  gives  you  a  significant 
reduction  from  our  already  lower  price. 

To  find  out  just  how  much  your  company  can  transfer  from 
the  expense  column  to  the  profit  column,  call  our  Special 
Account  Hot  Line.  The  more  you  rent,  the  Thriftier  we  get. 

Special  Account  Information  Hot  Line 


In  Oklahoma  call  918/665-3930 

Or  write  Frances  Miller,  Thrifty  Rent-A-Car  System,  Inc., 
P.O.  Box  35250,  Tulsa,  OK  74135. 

We  feature  Genera!  Motors  cars  like  this  Chevrolet  Caprice  Classic. 

rr   =av 


■  rent-a-car 


The  Up  &  Comers 

process  down  pat.  "I  would  have  bet 
my  last  dollar  that  this  was  my 
chance  to  make  it,"  says  McRae. 

So  McRae  did  an  about-face,  fo- 
cused on  combat  boots  and  hit  pay 
dirt  on  his  first  contract,  in  1967. 
Even  after  the  fighting  stopped  in 
Vietnam,  McRae  continued  to  coin 
money  in  combat  boots.  As  a  low-cost 
producer  he  was  able  to  survive  the 
shakeout  that  followed  war's  end. 
Things  have  improved  mightily  since. 
In  the  past  five  years  little  $13.9  mil- 
lion (sales)  McRae  has  been  among 
the  most  profitable  companies  in  the 
U.S.,  with  an  average  48.7%  return  on 
equity  and  virtually  no  debt.  McRae 
stock,  little  noticed  until  1980,  shot 
up  from  50  cents  to  a  recent  $10  on 
tbe  o-t-c,  making  McRae's  personal 

"J  was  there  and  I  heard 
what  the  man  said,"  recalls 
McRae  in  a  Carolina  drawl. 
"You  contractors  can  write 
all  the  letters  you  want  to 
your  senators  and  con- 
gressmen. You  can  whine 
and  moan  and  bitch.  But 
those  of  you  who  change 
over  will  get  the  business." 

30.5%  holding  in  the  company  worth 
about  $4.2  million. 

Wall  Street's  enthusiasm  comes  at 
a  curious  time.  This  year  overcapacity 
in  the  industry  has  severely  squeezed 
margins,  causing  McRae's  net  to  fall 
25%  in  the  first  three  quarters,  on  a 
7%  decline  in  sales.  But  if  McRae  is 
worried,  he  doesn't  show  it.  Instead 
he  talks  about  how  annoying  it  is  that 
the  recession  will  delay  the  break- 
even of  his  computer  software  busi- 
ness. Computer  software  business? 
Well,  it  seems  that  when  he  asked 
two  local  engineers  to  help  him  com- 
puterize his  piecework  accounting, 
they  came  up  with  a  laser-wand  sys- 
tem that  could  read  worker-prepared 
piecework  cards.  They  even  cracked 
an  IBM  code  in  the  process.  Because 
the  system  eliminates  the  need  to 
punch  in  every  worker's  card  ind  vid- 
ually,  McRae  decided  to  marke'  the 
process.  He  thinks  it  will  be  a  hit  with 
any  piecework  operation  once  busi- 
ness picks  up. 

Tooling  along  winding  roads  in  the 
Carolina  countryside  in  his  gleaming 
gold  Mark  VI  Continental,  McRae  be- 
gins talking  about  fortitude,  the 
motto  that  is  emblazoned  on  the  fam- 
ily's Scottish  coat  of  arms.  "Forti- 

FORBES,  OCTOBER  11,  1982 

How  to  get 

to  the  Middle  East 
and  Africa*  Rested* 




Stay  on  the  way  to: 



flights  to 
cities  halfway 
around  the 
world  ar  e  ex- 
hausting for 
almost  everyone 
Fbr  the  vacationer, 
this  experience  can 
be  a  disorienting  inconvenience. 

However,  for  the  pressured 
business  traveler  the  burden  of 
jet  lag  is  especially  heavy. 

Increasingly,  business  travelers 
are  discovering  it  makes  sense  to 
divide  their  trip  with  a  rest  stop 
along  the  way.  Many  corporations 
encourage  their  executives  not  to 
fly  straight  through.  A  work  day  is 
simply  more  productive  when  you 
arrive  relaxed. 

Y   m    The  seat  that  comes 
J    9   with  a  hotel  room. 

L  M      It  makes  wonderful  sense 
to  catch  your  breath  in 
m      Amsterdam  when  connect- 
ing for  flights  to  or  from  Dubai, 
Abu  Dhabi,  Lagos  or  any  of  40 
Middle  Eastern,  Ear  Eastern  or 
African  business  centers. 

All  KLM  Royal  Class  and  Business 
Class  passengers  to  these  cities 
are  entitled  to  a  deluxe  hotel  room. 
It's  part  of  KLM's  "Stay-on- 
the-Way"  plan. 

In  addition  to  a  spacious  room 
for  either  a  day  or  overnight,  you'll 
receive  motorcoach  transportation 

between  the 

airport  and  the  city  and  a 
$16  credit  toward  a  delight- 
ful meal  at  your  hotel, 
all  at  no  extra  cost. 

The  center  of 

Amsterdam  is  the  very  center 
of  European  air  travel.  And 
Amsterdam  has  only  one  airport 
with  only  one  terminal.  All  under 
one  roof.  Here  you'll  find  more 
than  1,284  weekly  connections  to 
125  cities  in  Europe,  the  Middle 
East,  the  Ear  East  and  Africa. 

For  reservations,  call  your 
Travel  Agent,  your  corporate 
travel  department  or  KLM. 


Royal  Dutch  Airlines 

The  airline  of  the  international  business  traveler 




Last  year,  the  eye  on  the  left  was  the  state  of  the  art  in 
copier  reproduction.  Whites  had  never  been  whiter.  Blacks  had 
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But  as  our  little  eye  test  proves,  the  world's  most  advanced 
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The  Xerox  9500  now  has  Photo  Contrast  Control. 

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The  results  are  right  before  your  eyes. 
But  the  9500  does  far  more  than  make  the  world's  best- 
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the  market.  Two  copies  per  second.  That's  7200 
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It  also  does  more  different  jobs 

_  than  any  other  copier. 

It  collates.  Sorts.  Even  copies  on 

Tie  Xerox  9500  Copier/Duplicator       i  J   J-    •  1  a  •  11 

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It  makes  variable  reductions  down  to  61.5% .  And 

tandles  more  weights  of  paper  than  any  other  copier.  Both 

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That's  just  the  oeginning.  For  more  information  and  an 

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i  an  ad  simply  can't  do  it  justice),  call  800-828-6210,*  operator 

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slame  Title  

Company  Address  

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'ip  Phone  


FB-10-1  1-82 

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XtROX®  anj  9500  are  trademarks  of  XEROX  CORPORATION 

tude,"  he  says,  "will  serve  you  when 
nothing  else  will.  Just  hang  in  there, 
buddy,  hecause  those  who  get  impa- 
tient will  sell  out  cheap.  Those  who 
persevere  will  reap  the  harvest." 

MeRae  knows  what  he's  talking 
ahout.  Starting  out  as  a  carpenter's 
helper  in  1937  for  20  cents  an  hour,  he 
eventually  amassed  enough  money  to 
go  into  the  construction  business 
with  a  couple  of  his  brothers  after  the 
war.  As  the  Sunbelt  boomed,  the 
McRae  Brothers  Manufacturing  Corp. 
flourished,  landing  contracts  to  put 
up  stores,  churches  and  homes 
throughout  Montgomery  County.  In 
time  McRae  became  a  prominent 
businessman  and  worked  to  attract 
new  business  into  the  area. 

The  portly  Southerner  convinced 
several  local  businessmen  to  put  up 
$200,000  in  cash  to  persuade  a  New 
York  footwear  company  to  relocate  in 
an  old  school  building  he  had  pur- 
chased in  1955  tor  $5,600  and  was 
using  as  a  warehouse.  But  at  the  last 
minute  the  New  York  company 
moved  instead  to  Selma,  Ala. 

Says  McRae:  "I  felt  embarrassed 
about  it  and  said,  'Let's  see  if  we  can 
get  somebody  else.'  "  That  somebody 
turned  out  to  be  himself.  Call  it  pride, 
or  community  spirit,  or  perhaps  em- 
barrassment, but  Branson  McRae  de- 
cided to  turn  his  schoolhouse/ ware- 
house into  a  shoe  factory  himself.  "I 
didn't  know  a  damn  thing  about  mak- 
ing shoes,  but  I  took  a  chance." 

For  a  third  of  the  new  venture's 
stock  McRae  chipped  in  $100,000 
cash  and  assets,  including  the  remod- 
eled school  building.  He  bought 
$25,000  worth  of  used  sewing  ma- 
chines and  $20,000  worth  of  new 
molding  presses  and  hired  the  former 
plant  manager  at  another  children's 
shoe  company  to  set  up  shop.  Armed 
with  a  total  $300,000  in  startup  cap- 
ital from  selling  the  remaining  two- 
thirds  of  the  company  to  local  inves- 
tors, McRae  set  forth  to  become  a 
national  children's  shoe  manufactur- 
er in  1959. 

Trouble  was  McRae  hadn't  done 
any  financial  planning  and  had  no 
idea  what  marketing  was  ail  about.  By 
the  time  he  had  rolled  out  a  brand 
name  shoe,  Grow-Ri^ht,  he  discov- 
ered he  had  no  money  left  to  advertise 
it.  And  there  was  no  fallback.  As  a 
newcomer  to  the  business,  he  lacked 
the  contacts  and  experience  to  sell 
private-label  shoes  to  stores.  McRae 
survived  for  the  next  seven  years  by 
handing  over  a  greater  stake  in  the 
company  to  an  outside  investor  in 
exchange  for  additional  apital. 

So  it  was  a  hungry,  much  chastened 
Branson  McRae  who  took  a  flier  on 

The  Up  &  Comers 

combat  boots  in  1967.  Borrowing 
$200,000  from  the  Small  Business  Ad- 
ministration to  tool  up,  McRae 
earned  enough  profit  on  his  first  con- 
tracts to  retire  that  debt  in  1 1  months. 
"When  I  paid  that  SBA  guy  back,  he 
said  I  damn  near  shocked  him  dead," 
laughs  McRae.  "He  thought  he'd  be 
lucky  to  get  it  m  five  years." 

The  competition  was  formidable. 
Among  12  other  bidders  were  giants 
like  Bata  Shoe,  Ccnesco,  Endicott 
Johnson  and  Interco.  Fortunately  for 
McRae  such  companies  soon  lost  in- 
terest as  the  demand  for  combat  boots 
fell  in  the  post-Vietnam  era.  "When 
Genesco  gave  up  the  ghost  three  years 
ago,  there  were  only  three  of  us  left," 
says  McRae,  "and  we  couldn't  keep 
up  with  production."  So  McRae  hiked 
the  price  of  his  standard  black  leather 

A  hungry  McRae  took  a  flier 
on  combat  boots  in  1967. 
Borrowing  $200,000,  McRae 
earned  enough  profit  to  re- 
tire that  debt  in  11  months. 
"When  I  paid  that  SBA  guy 
back,  he  said  I  damn  near 
shocked  him  dead." 

and  tropical  canvas  combat  boots — 
which  now  sell  for  about  $21  a  pair — 
by  over  40%  in  1979  alone.  Those  fat 
margins  caused  McRae  and  his  two 
larger  privately  owned  competitors  to 
beet  up  capacity  and  also  attract  the 
latest  newcomer,  Wellco  Enterprises, 
Inc.,  the  inventors  of  the  molded  shoe 
sole  process.  Meantime,  the  govern- 
ment is  buying  fewer  boots. 

The  result:  instant  overcapacity. 
MeRae  figures  the  industry  produces 
about  2.5  million  pairs  of  combat 
boots  annually,  but  the  government  is 
expected  to  buy  only  1 .8  million  pairs 
this  year.  At  the  last  bidding,  prices 
were  down  almost  to  cost. 

But  McRae  has  weathered  shake- 
outs  before.  He's  counting  on  his 
company's  production  efficiencies. 
One  of  them  is  the  hand-held  laser 
wand  that  enables  the  staff  to  collect 
piecework  numbers  from  factory 
workers  nearly  four  times  as  fast  as 
manual  keypuncb  operations. 

It  helps,  too,  that  McRae  runs  a 
nonunion  shop  and  generously  re- 
wards his  most  productive  employees. 
Up  to  20%  of  the  company's  pretax 
profits,  more  than  $800,000  last  year, 
are  funncled  into  a  profit-sharing  plan 
for  all  workers.  "I  could  have  bought 
each  one  of  my  salaried  employees  a 

pink  Cadillac  last  year,  and  1  still 
would  have  had  money  left  ovci  to  till 
them  all  up  with  gas,"  says  McRae. 
"They'd  run  a  union  man  right  out  ot 
here."  Or  at  least  he  hopes  they  would. 

And  as  much  as  McRae  may  curse 
the  red  tape  he  encounters  as  a  gov- 
ernment contractor,  he's  the  first  to 
admit  he  benefits  from  it.  At  one 
time,  for  example,  Genesco  found  it- 
self closed  out  of  50%  of  the  market 
because  the  government  set  aside  half 
its  contracts  for  small  companies  like 
McRae  Industries.  Another  federal 
rule  puts  firms  at  a  disadvantage  if 
they  aren't  located  in  high  unemploy- 
ment areas.  McRae  gets  around  this 
last  one  by  purchasing  materials  from 
so-called  labor-surplus  areas  and  sub- 
contracting cutting  work  to  a  nearby 
county  with  high  unemployment. 
And,  of  course,  McRae,  unlike  tegular 
U.S.  shoe  companies,  doesn't  have  to 
worry  about  imports  because  the  gov- 
ernment buys  only  U.S. -made  boots. 

Nonetheless,  to  lessen  the  com- 
pany's dependence  on  government 
work,  McRae  has  gone  into  equip- 
ment leasing,  leasing  such  things  as 
Pac-Man  machines,  cars  and  knitting 
machinery  through  a  separate  divi- 
sion that  will  account  for  20%  of  in- 
come this  year.  McRae  figures  leasing 
is  a  good  deal.  The  tax  credits  and 
depreciation  benefits  allow  him  to 
shelter  income  from  the  combat-boot 
business.  In  a  recent  deal  he  pur- 
chased a  new  bulldozer  for  $121,500, 
after  finding  someone  who  wanted  to 
lease  it  for  five  years.  McRae  will  tie 
up  only  20%  of  the  cost  of  the  vehicle, 
borrowing  the  rest.  He  then  gets  to 
take  off  $12,150  in  taxes  this  year  as 
an  investment  tax  credit.  He  gets  an- 
other $10,000  break  annually  for  five 
years  based  on  straight  five-year  de- 
preciation of  $25,000  per  year.  On  top 
of  that,  he  gets  more  than  $3,000  a 
month  in  leasing  payments.  All  told, 
McRae  figures  he  will  earn  15%  after 
taxes  on  the  little  bulldozer  deal. 

Beyond  that,  McRae  is  going  inter- 
national. He  just  shipped  his  first  for- 
eign order  for  40,000  pairs  of  combat 
boots  and  is  hoping  for  more  to  pick 
up  the  slack  on  the  domestic  side. 

Still,  despite  the  current  overcapac- 
ity plaguing  the  market,  he  plans  to 
increase  his  domestic  boot  capacity 
by  10%  in  early  1983.  Why?  McRae 
wants  to  cash  in  the  next  time  a  com- 
petitor closes  its  doors. 

"Somebody's  going  to  get  pushed 
out  of  this  game  pretty  soon  because 
it's  dog-eat-dog  right  now,"  says 
McRae,  his  eyes  brightening  at  the 
thought.  "We're  just  going  to  hang  in 
there  because  there  ain't  no  way  in 
the  world  it's  going  to  be  me."  ■ 


FORBES,  OCTOBER  11.  1982 





By:  John  F  Wing 
Sr.  Vice  President 
Booz -Allen  &  Hamilton 

Transportation  didn't  hold  a  lot  of 
surprises  for  shippers  before  deregu- 
lation. Carriers  offered  fairly  standard- 
ized services  at  standardized  prices. 
Shippers  knew  which  carrier  offered 
what,  how  much  it  was  going  to  cost, 
and  which  mode  offered  the  best 
deal.  And  just  as  importantly,  shippers 
knew  what  their  competitors  were 
paying  for  transportation.  As  long  as 
their  products  were  delivered  safely 
and  on  time,  top  management  had 
more  pressing  problems  demanding 
their  attention.  Government  regulation 
not  only  protected  carriers  from  some 
of  the  rigors  of  competition,  but 
shielded  shippers  as  well  from  some 
arduous  management  tasks. 

Deregulation  has  changed  all  of 
this.  Public  policy  has  directed  that 
users  of  public  services  pay  for  their 
benefits,  and  that  competition  and 
market  forces  determine  the  services, 
costs,  and  supplies  of  transportation. 
Major  legislation  has  been  enacted  by 
Congress  to  accomplish  some  of 
these  goals. 

The  process  of  deregulation  is 
ongoing  but  the  effects  have  already 
been  profound.  The  relative  prices 
and  advantages  offered  by  transport 
modes  and  individual  carriers  fre- 
quently change;  the  distribution  sys- 
tems of  many  shippers  are  obsolete; 
suppliers  to  the  transportation  indus- 
try are  unsure  which  carriers  will  need 
equipment  and  when;  and  carriers 
themselves,  because  of  intense  price 
competition,  shifting  markets,  and 
profit  squeezes,  often  cannot  make 
adequate  investments  in  ^ent 
and  technology. 

Shippers  need  to  unde  ne 

implications  of  these  developments 
for  their  costs  and  distribution  plans 
There  are  many  attractive  new  options 
in  rate  and  service  terms  that  did  not 
exist  prior  to  deregulation.  As  aggres- 
sive carriers  move  to  solidify  their 
market  positions,  shippers  could 
move  decisively  to  lock  in  newly  avail- 
able options  for  an  extended  period 
of  time. 

Let's  look  at  some  of  the  effects  of 
deregulation  on  competition  and  ser- 
vice within  the  railroad  and  trucking 
industries,  at  the  implications  of 
deregulation  for  intermodal  service, 
and  at  the  probable  effects  of  upcom- 
ing deregulation  in  ocean  shipping. 
Shippers  will  see  that  there  are  ways 
to  benefit  from  the  newly  deregulated 
environment,  as  well  as  problems  that 
may  surface. 


Two  major  pieces  of  legislation 
were  passed  by  Congress  in  1980 
that  fundamentally  altered  the  railroad 
and  trucking  industries.  The  Staggers 
Rail  Act  of  1980  and  the  Motor  Carrier 
Act  of  1980  removed  much  of  the 
Interstate  Commerce  Commission's 
(ICC)  control  over  rail  and  truck  and 
directed  that  prices  and  service 
arrangements  be  set  independently 
by  carriers  on  the  basis  of  market 
forces  and  costs.  Three  important 
effects  are  that  competition  both 
between  and  among  railroads  and 
motor  carriers  has  intensified,  the 
trend  towards  mergers  has  acceler- 
ated, and  intermodal  shipments  have 
become  more  commonplace.  Pend- 
ing legislation  to  allow  longer  and 
heavier  trucks  could  bring  about  a 
new  wave  of  change  in  the  motor  car- 
rier industry  and  greatly  improve  the 
productivity  and  competitiveness  of 
trucks  to  the  detriment  of  rail.  The 
long-term  toll  of  deregulation  for  the 

railroads  might  be  high  as  trucks  s 
off  their  best  and  most  profitable  tr 

The  Staggers  Act  allows  railroai 
greater  flexibility  in  setting  rates, 
legalizes  contracts  with  customer; 
removes  regulatory  control  over  c< 
modities  and  service  offerings,  an 
makes  it  easier  for  railroads  to  aba 
don  unprofitable  lines,  enter  new 
markets,  and  merge.  Unlike  the  pa 
senger  airline  and  motor  carrier 
industries,  railroads  have  adjustec 
relatively  well  to  the  short-term 
changes  brought  about  by  deregi 
tion.  One  primary  intent  of  rail  dere 
lation  was  to  improve  profits  and 
stability  in  the  industry 

Prior  to  deregulation,  railroads  t 
ically  did  not  compete  in  price  with 
each  other.  Rates  were  set  collec- 
tively for  both  single-line  and  joint- 
services.  Railroads  can  no  longer 
jointly  set,  or  in  most  cases  even  d 
cuss,  rates. 

Railroads  must  now  also  compe 
more  in  terms  of  services  offered- 
reliability  of  rail  car  supply  and  eqi 
ment,  speed  of  service,  loading/ 
unloading  responsibilities,  quality 
equipment.  Contracts  guaranteeir 
certain  rates  and  services  in  return 
a  steady  volume  of  business  have 
been  negotiated  by  the  newly  com 
petitive  carriers  and  the  more  aggi 
sive  shippers. 

But  railroads  want  some  busme 
more  than  they  want  others;  margn 
customers  whose  shipments  are 
small  either  in  volume  or  in  the  amc 
of  profit  they  offer  to  the  railroads  a 
no.  longer  protected  by  regulation. 
Some  customers,  therefore,  face 
higher  rates  and  possible  loss  of  ra 
service  along  with  a  confusing  anc 
more  complicated  pricing  system, 
shippers  have  complaints,  the  Inte 
state  Commerce  Commission  will  I 
often  offer  recourse. 

With  the  relaxation  of  ICC  re- 
strictions on  rail  mergers  and  line 
abandonments,  the  trend  toward  d 
solidation  in  the  industry  has  accell 


The  company  on  the  move. 

Consolidated  Freightways  has  grown  faster 
than  ever  since  the  Motor  Carrier  Act  of  1980  — 
popularly  called  "deregulation"  but  actually  a 
step  toward  freer  competition.  Two  years  ago,  we 
had  fewer  than  300  terminals  in  48  states  and 
Canada.  Today,  nearly  400  in  all  50  states.  And 
we're  still  averaging  one  new  one  a  week. 

Add  to  this  70  air  freight  terminals  and  doz- 
ens of  special  commodities  offices  and  agents, 
and  you  get  the  picture:  the  CF  map  is  the  only 

guide  you  need  for  freight  transportation. 

We're  Consolidated  Freightways  common 
and  contract  trucking  service,  CF  Air  Freight,  and 
CF  Arrowhead  special  commodities  truckload 
service.  We're  Canadian  Freightways  in  Canada. 
More  than  500  terminals  and  offices  in  North 
America.  Write  for  the  picture  story  of  the 
CF  System,  our  remarkable  new  freight-flow 
concept:  Department  7,  175  Linfield  Drive, 
Menlo  Park,  CA  94025. 

Professional  transportation  for  American  industry 

ated.  Over  time,  therefore,  fewer  cus- 
tomers may  be  served  on  fewer  lines 
by  fewer  railroads.  Mergers  are 
expected  to  simplify  pricing,  increase 
the  average  length  of  hauls,  and 
improve  productivity  and  the  guality 
of  rail  services. 

In  the  long  run,  the  changes  that 
occur  in  the  railroad  industry  may  be 
influenced  as  much  by  trucking 
deregulation  as  by  rail  deregulation. 
The  Motor  Carrier  Act  of  1980  lifts 
many  federal  controls  over  truck 
rates,  and  perhaps  most  importantly, 
makes  it  easier  for  firms  to  enter  new 

While  railroads  had  steadily  lost 
market  share  to  trucks  in  the  post- 
World  War  II  period,  markets  had 
begun  to  stabilize.  Now  the  equilib- 
rium between  the  two  modes  has 
been  disrupted  and  trucks  are  again 
competing  for  traditional  rail  busi- 
ness. The  truck  owner-operators  that 
have  proliferated  since  deregulation 
generally  cost  less  than  do  the  major 
trucking  firms.  They  have  underpriced 
traditional  motor  carriers  and  won 
business  from  them.  As  a  result, 
unionized  trucking  firms,  with  the 
cooperation  of  their  employees,  have 
been  working  in  turn  to  cut  their  costs 
and  to  improve  their  productivity. 
Truckers,  however,  are  paying  the 
price  for  this  competition.  Rate  wars 
have  forced  many  smaller  firms  to 
merge  to  or  go  out  of  business.  Reve- 
nues have  fallen,  and  the  profit 
squeeze  has  been  exacerbated  by 
the  overcapacity  in  trucking  due  to 
the  recession. 

The  ability  of  motor  carriers  to  com- 
pete with  rail  in  new  markets  and  for 
new  commodities  may  improve  fur- 
ther. Recently  completed  labor  nego- 
tiations appear  to  reinforce  the  cost 
advantage  in  trucking.  The  teamsters 
have  accepted  a  wage  package  esti- 
mated to  increase  at  a  rate  of  4.5  per- 
cent annually  for  the  next  3  years.  The 
rail  labor  agreement  will  increase  rail- 
road costs  by  an  average  of  approxi- 

mately 10  percent  per  year. 

Pending  legislation  to  increase 
truck  size  and  weight  limits  would  also 
improve  the  productivity  and  lower 
the  costs  of  many  motor  carriers. 
Rates  will  probably  come  down,  even 
if  companion  legislation  to  raise  truck 
user  charges  were  enacted. 


One  of  the  most  important  out- 
growths of  rail  and  truck  deregulation 
may  be  the  growth  of  piggyback 
which  lets  shippers  take  advantage  of 
the  economies  offered  by  different 
transport  modes.  Commodities  move 
by  truck  from  the  point  of  origin  to  rail 
terminals  where  the  trailer  itself  is 
loaded  onto  a  rail  car  for  the  long 

But  the  theoretical  attractiveness  of 
such  an  intermodal  system  had  not 
translated  into  a  high  share  of  the 
freight  market.  Less  than  3  percent  of 
intercity  freight  moved  by  piggyback 
in  1980. 

In  the  past,  piggyback  has  had 
some  significant  drawbacks—nota- 
bly, high  rates,  a  lack  of  specialized 
handling  equipment,  and  a  frag- 
mented rate  structure.  Perhaps  most 
troublesome  to  shippers,  no  one 
entity  could  offer  reliable  service  and 
accountability  for  a  shipment  involv- 
ing more  than  one  railroad.  Even  with- 
out the  added  impetus  of  deregula- 
tion, however,  steps  had  been  taken 
to  eliminate  some  of  the  drawbacks. 
Rates  had  come  down,  new  and  spe- 
cialized equipment  had  been  put  in 
place,  and  the  quality  of  service  had 

With  deregulation  new  commodi- 
ties and  markets  have  been  opened 
to  piggyback  service  and  rates  have 
come  down  further.  In  1979,  for  exam- 
ple, railroads  were  permitted  to  use 
piggyback  to  enter  the  fresh  fruit  and 
vegetable  market,  a  market  in  which 
rail  service  had  been  decreasing 

since  the  1950s.  Subsequent  derec 
lation  permitted  carriers  to  offer  pic 
gyback  services  to  all  traffic. 

Deregulation  governing  carrier  e 
from  markets  has  also  given  piggy- 
back new  customers.  Shippers  whi 
might  lose  rail  service  as  a  result  oil 
more  liberalized  line  abandonment 
rules  have  piggyback  as  an  alterna 
tive  to  their  traditional  rail  service. 
Easing  of  regulations  on  carrier  ent 
into  markets  also  has  encouraged 
piggyback  because  there  are  man< 
new  motor  carriers  who  can  partici- 
pate in  piggyback  moves. 

Also  as  a  result  of  deregulation, 
railroads  can  more  easily  operate 
their  own  trucking  subsidiaries  andl 
thus  generate  more  intermodal  ship 

During  the  first  half  of  1982,  pigg 
back  carloads  were  up  by  almost  8 
percent  over  the  same  period  in  19. 
while  rail  traffic  in  other  freight,  exo 
coal,  declined.  Truck  traffic  has  alsj 
declined,  an  indication  that  piggy- 
back is  winning  business  and  that  t 
shipping  public  has  responded  po: 
tively  to  the  advances  made  so  far. 
The  potential  for  future  growth  is 

Deregulation  has  not  eliminated 
the  constraints  to  piggyback.  Truck 
and  railroads  still  compete  among 
themselves  and  with  each  other,  yei 
collaboration  is  important  in  intermc 
dal  service.  Sharing  information,  cu 
tomers,  and  facilities  is  still  antitheti 
to  much  of  the  railroad  and  trucking 
industries.  Until  the  rise  of  third-pan 
shipper's  agents,  this  impeded  the 
growth  of  piggyback.  Additionally,  I 
cost  savings  that  are  provided  by  p 
gyback  may  diminish  depending  on 
the  price  of  fuel.  When  diesel  fuel 
prices  rise,  piggyback  becomes  a 
more  attractive  alternative  to  shippil 
by  truck  alone.  If  diesel  fuel  prices 
stabilize  or  decrease,  the  cost  sav- 
ings from  piggyback  are  less  signifi 
cant  and  the  use  of  this  service  less 


Promises,  promises,  promises. 

They  fly  around  the  air  cargo 
business  with  the  greatest  of 
ease.  Second  only  to  excuses, 
excuses,  excuses. 

Except  at  Flying  Tigers. 

Our  domestic  door-to-door 
service  features  something  our 
competitors  shudder  to  even 

100%  guaranteed  on  time 

We'll  pick  up  virtually  anything 

you  have  to  ship,  and  deliver  it 
virtually  anywhere  in  the  country, 
overnight,  on  time.  Or  you  don  t  pay. 

No  promises.  No  excuses. 

Simply  a  100%  money-back 
guarantee.  Period. 

For  information  on 
our  100%  money-back 
guarantee,  call  your 
local  Flying  Tigers 
Customer  Service 




"There*  never  been 
a  better  time  to  bring 
your  freight  business 
to  Conrail" 

L.  Stanley  Crane 

Chairman,  Conrail 

terms  year,  you're  look- 
1  ing  at  a  more  effi- 
cient, more  responsive 
Conrail  than  ever  before. 

"We're  not  part  of  any 
rate  bureau.  Our  rates  are 
determined  by  the  mar- 
ketplace, and  we  can 
quickly  tailor  a  rate  or 
contract  to  your  specific 

"Now  is  the  best  time  to 
negotiate  new  contracts 
or  rates." 

"  Right  now  our  system  is 
underutilized.  We  want  to 
get  as  many  cars  as  possi- 
ble loaded  and  rolling. 
And  to  do  that,  we'll  offer  you  some  very 
attractive  terms. 

"As  a  shipper,  you  really  have  nothing 
to  lose— and  a  lot  to  gain— by  calling 
Conrail  to  ask  what  we  can  do  for  you. 

"I  promise  you  this:  Within  our 
operating  areas,  you  won't  find  a  carrier 
more  eager,  or  more  competitive." 

"Our  service  is  second  to  none. 
Just  ask  our  customers." 

"Ask  our  piggyback  shippers,  for  exam- 
ple. They'll  tell  you  we're  delivering 

Our  rates  are  competitive,  we're  running  like  clockwork,  and 
we're  hungry  for  business,"  said  Crane  in  a  recent  talk 
with  major  shippers.  Shown  here  are  (left  to  right)  John  Regan 
Eastern  Associated  Coal  Corp.;  James  Abbey,  Charter  Oak 
Shippers  Coop.  Assoc.;  L.  Stanley  Crane;  Michael  Walsh, 
St.  Regis  Paper  Co. 

their  shipments  within  one  hour  o 
schedule  more  than  85  percent  of  th 

"Our  new  computerized  dock-to-doc 

irvice  monitoring  is  helping  us  run 
noother  and  smarter.  We  can  spot- 
leck  your  shipment  for  you  any  time 
id  any  place  on  our  system. 
"We've  also  introduced  a  new  comput- 
ized  car  management  system,  which  is 
aproving  our  equipment  availability 
id  distribution.  This  car  reservation 
astern  will  be  ready  to  meet  your 
luipment  needs  when  the  economy 
cks  up,  too." 

We  plan  to  be  the  low-cost  carrier  in 
the  Midwest  and  Northeast." 

onrail  is  reducing  costs  faster  than  any 
ther  railroad  in  the  country.  We're 
ledding  unprofitable  routes  in  order  to 

0  a  better  job  on  our  core-route  sys- 
im— where  we  have  the  competitive 

"Our  people  have  made  major  sacri- 
ces,  including  wage  concessions  of 
undreds  of  millions  of  dollars,  in  order 
)  improve  our  competitive  position, 
his  means  lower  rates  to  you.  Within 
le  Midwest  and  the  Northeast,  and  at 

1  the  connections  to  our  system,  we  are 
mply  the  smartest  and  the  most  effi- 
ent  way  to  ship." 

"WeVe  made  an  extraordinary 
financial  turnaround." 

onrail's  1981  financial  performance  was 
ne  of  the  most  dramatic  improvements 
i  American  corporate  history. 
"From  a  $244  million  loss  in  1980  to  a 
39  million  profit  in  1981,  we've  made  a 
imarkable  quarter-billion-dollar  recov- 
py—  in  spite  of  a  decline  in  traffic  and  a 
) -day  coal  strike. 

"And  we're  making  even  greater 
financial  progress  in  1982." 

"New  industry  is 
building  on  our  system." 

"Today,  companies  are  demonstrating 
their  continued  confidence  in  our  ability 
to  deliver— they've  invested  millions  in 
facilities  along  the  Conrail  system. 

"In  1981,  272  new  or  expanded  facili- 
ties located  on  Conrail's  core-route  sys- 
tem, adding  an  estimated  $100  million  to 
our  revenues." 

"Take  your  problems  right  to  the  top." 

"We're  determined  to  do  a  good  job  for 
you.  That  means  you'll  get  competitive 
prices,  innovative  service  and  on-time 

"If  we  don't  live  up  to  our  promise,  I 
want  to  know  about  it  personally. 

"Write  to  me  at  6  Penn  Center  Plaza, 
Room  1040C,  Philadelphia,  PA  19104. 

"I'll  fight  to  get  your  business -and  I'll 
fight  to  keep  it." 

For  more  information,  including  a  free  "Shipper's 
Information  Kit"  with  tips  on  how  to  get  the  most 
out  of  Conrail  services,  send  in  the  coupon  below. 


I  "We've  got  to  be  competitive" 

,  Mr.  L.  Stanley  Crane  , 

Chairman  and  CEO 

Conrail,  Room  1040C 
I  6  Penn  Center  Plaza 

I  Philadelphia,  PA  19104  1 

|  Please  send  the  "Shipper's  Information  Kit"  and  more  | 
.  information  on  Conrail.  , 

N  A'M  E  

|   FIRM   | 


CITY  .  .  .  

|  STATE—  ZIP   | 


4  Now  there's 
only  one 
name  to 
for  all  your 


I'm  Lewis  Rubin,  President 
of  Flexi-Van  Corporation. 
The  Flexi-Van  logo  you're 
now  seeing  on  our  contain- 
ers, chassis  and  trailers  is 
only  the  most  visible  indica- 
tion of  the  changes  we're 
making  to  better  serve 
the  worldwide  transporta- 
tion market. 

Our  Flexi-Van  container 
and  chassis  division,  for- 
merly the  Uni-Flex  division, 
has  245,000  20-foot-equiva- 
lent  containers  and  56,000 
chassis,  making  us  the 
second  largest  firm  in  con- 
tainer leasing  and  the  lead- 
er in  chassis  leasing  Our 
size  allows  us  to  provide 
flexible  terms  and  respon- 
sive service  at  300  locations 
around  the  world. 

chassis  and 

Our  Flexi-Van  trailer  divi- 
sion, formerly  the  Gil-Flex 
division,  has  a  fleet  of 
16,000  trailers.  Our  net- 
work of  60  terminals  in 
the  U.S.  and  Canada  is 
the  second  largest  in  the 

Our  improved  Management 
Information  System  will 
allow  us  to  position  equip- 
ment more  precisely,  where 
it's  needed,  when  it's  needed. 

■  ■■  -VAN 

trailer  «  r 

So  from  now  on,  when  you 
think  of  containers,  chassis 
or  trailers,  think  Flexi-Van. 

leasing  needs. 

The  one  name  to  remember 





Flexi-Van  Corporation 
330  Madison  Avenue 
New  York,  New  York  10017 
(212)  286-4400 

.imits  on  truck  size  and  weights 
likely  to  increase.  This  will  lower 
costs  of  motor  carriage  and  may 
)  diminish  the  incentives  for  inter- 
nal shipping. 

'he  new  individualized  rate  setting 
tern  resulting  from  deregulation  is 
)  a  constraint  to  piggyback.  While 
e  is  more  price  competition 
)ng  carriers,  researching  and 
uring  rates  is  a  more  complicated 
The  complications  increase  with 
rmodal  shipments  involving  multi- 
carriers  and  shippers  may  choose 
void  them. 

)eregulation  has,  however,  given 
)pers  a  way  to  minimize  some  of 
;e  complications,  and  perhaps  the 
;t  important  result  of  deregulation 
ntermodal  service  is  the  emer- 
ce  of  shipper's  agents.  The  agent 
linates  many  of  the  difficulties  that 
je  shippers  reluctant  to  use  piggy- 
k.  As  a  broker  for  the  railroads 
motor  carriers,  and  as  representa- 
of  the  shippers,  the  agent  can 
te  rates  for  an  entire  trip— dock- 
ock— and  can  provide  equip- 
lt,  service,  and  accountability  for 
total  undertaking.  The  leverage 
agent  gains  with  carriers  by  bro- 
ng,  consolidating,  and  mixing 
1  volumes  of  traffic  means  that 
ecially  low-volume  shippers  have 
ater  potential  for  lower  cost,  higher 
lity  and  less  complex  service 
■n  agents  work  on  their  behalf. 


he  middleman  has  also  assumed 
w  and  facilitating  role  in  ocean 
■ping  as  a  result  of  some  first 
is  toward  deregulation  in  this  seg- 
t  of  the  transportation  industry, 
e  an  abundance  of  proposals  to 
en  regulatory  control  of  the  ship- 
I  industry  are  pending  in  Con- 
,s,  few  major  changes  have  taken 
e.  And  because  of  problems 
)ciated  with  the  international  con- 
nces  of  common  carriers  that 

dominate  ocean  trade,  legislation  can 
only  go  part  way  toward  resolving 
some  of  the  problems  that  confront 
both  shipping  lines  and  shippers.  So, 
while  stepped  up  exporting  may  be 
seen  as  one  way  to  give  American 
producers  new  markets  and  reinvigo- 
rated  demand  for  their  products,  it  is 
not  certain  that  deregulation  can  or 
will  satisfy  shippers'  needs. 

The  most  important  regulatory 
change  to  date  in  ocean  shipping  has 
been  the  lifting  of  requirements  for 
bills  of  lading  from  pier  to  pier.  This 
change  means  that  goods  can  be 
transported  from  shipping  dock  to 
shipping  dock  and  that  any  number 
of  participants  can  broker  or  control 
the  entire  move.  As  a  result,  non- 
vessel  operating  common  carriers 
(NVOCCs)  have  emerged,  along  with 
freight  forwarders  and  other  agents, 
to  offer  full  service,  single-price 
moves  to  shippers.  Ports,  NVOCCs 
railroads,  and  even  motor  carriers  can 
hold  the  primary  contract  for  an  ocean 
crossing.  This  development  has 
diluted  the  traditional  control  of  ship- 
ping lines  over  international  trade, 
and  has  been  particularly  beneficial 
to  lower  volume  shippers  to  whom 
attractive  rates  are  not  readily 

While  this  change  has  been  advan- 
tageous to  shippers,  the  primary 
intent  of  proposed  shipping  law 
reform  legislation  (S.1593,  H.R.  4374) 
is  to  strengthen  the  financially  ailing 
merchant  marine 

Some  provisions  in  the  proposed 
legislation  would  be  beneficial  to 
shippers.  These  provisions  would 
legalize  shippers'  councils  formed  to 
increase  negotiating  leverage  with 
carriers;  permit  more  options  in  rate 
and  service  terms;  and  permit  carriers 
or  agents  to  set  intermodal  through 
rates.  But  other  provisions  granting 
antitrust  immunity  to  certain  shipping 
conference  activities,  permitting 
closed  conferences,  restricting  Fed- 
eral Maritime  Commission  oversight 

on  rates,  and  eliminating  require- 
ments for  carriers  to  file  ocean  tariffs 
could  make  it  more  difficult  for  ship- 
pers to  obtain  improved  rates  and 
services  from  shipping  lines. 

One  major  problem  that  deregula- 
tion cannot  eliminate  is  the  price  dis- 
crimination against  U.S.  shippers  that 
results  from  the  structure  of  the  inter- 
national conferences  of  ocean  com- 
mon carriers  that  control  the  prices 
and  supply  of  ocean  transport. 

In  setting  rates,  the  interests  of  U.S. 
shippers  are  often  overshadowed  by 
the  interests  of  the  European  Eco- 
nomic Community  or  the  countries  of 
the  Far  East  that  tend  to  dominate  the 
conferences.  The  ocean  rates  that  are 
often  available  to  exporters  shipping 
from  abroad  to  the  United  States  are 
frequently  denied  to  the  American 
exporter  on  the  return  leg  of  the  cross- 
ing. A  study  conducted  by  Booz- 
Allen  &  Hamilton  showed  that  in  the 
1970s,  freight  rates  were  32  percent 
higher  on  the  outbound  leg  of  a  cross- 
ing (American  exports)  than  were 
rates  for  similar  commodities  on  the 
inbound  leg  of  the  same  route.  It 
seems,  therefore,  that  a  dispropor- 
tionate share  of  the  costs  of  ocean 
carriers  has  been  borne  by  the  U.S. 

Shippers  also  confront  problems 
because  U.S.  flag  vessels  give  prefer- 
ence to  U.S.  government  cargo.  At 
times,  this  cargo  consumes  up  to  70 
percent  of  U.S.  flag  outbound  space. 
This  reduces  the  capacity  for  com- 
mercial cargo  and  bids  up  the  price  of 
residual  space. 

Deregulation  of  ocean  shipping  will 
offer  only  some  assistance  to  U.S. 
shippers  seeking  to  reach  new  mar- 
kets with  competitive  products.  While 
more  opportunities  should  be  avail- 
able to  shippers  to  negotiate  rates 
and  service  terms  and  to  exert  more 
influence  over  the  actions  of  shipping 
lines,  shippers  will  not  gain  significant 
leverage  with  foreign  flag  carriers  with 
whom  they  must  also  deal. 

CSX  Corporation 


Chessie  Sxj 


Family  Lines  Rt 

Chessie  System  Rcnlnoads  and  Fan .: 
Rail  System  are  units  of  CSX  Carper 

n  Classify  More 
an  A  Million 
ilroad  Cars  A  Year. 


em  service  is  all  about: 
ed,  efficiency  and  depend- 
lity.  Day  in,  day  out. 
By  using  the  latest 
inology  programmed  to 
rtion  non-stop,  Queensgate 
1  classify  over  a  million 
s  a  year  on  50  classification 

Queensgate's  process 
itrol  systems,  closed-circuit 
■vision  and  computerized 
rimunications  switching 
re  cut  the  time  it  takes  to 
ve  an  incoming  car  to  the 

proper  outgoing  train  in  half! 

This  may  not  be  the  kind 
of  operating  technique  you'd 
associate  with  a  railroad. 
But  then  we're  not  just  any 

And  we'd  like  nothing 
better  than  the  chance  to 
prove  it  to  you. 

So  no  matter  how,  what  or 
where  you've  been  shipping, 
call  us  toll  free  (800)  368-2792. 
Or  write:  Single-System 
Service,  PO.  Box  C-32222, 
Richmond,  VA  23261. 






And  Natural 




In  sum,  deregulation  has  intro- 
duced greater  complexity  and  com- 
petition into  much  of  the  U.S.  freight 
transportation  marketplace.  As  a 
result,  the  reliability,  costs,  and  ser- 
vice associated  with  many  carriers 
have  changed.  Shippers'  preferences 
and  choices  of  transportation  modes 
have  changed  as  well.  And  these 
changes  have  been  further  influenced 
by  shifting  fuel  prices  and  a  reces- 
sion. The  trade-offs  and  advantages 
of  a  shipper's  transportation  network, 
therefore,  are  constantly  changing 
and  must  continually  be  reappraised. 
As  a  consequence  of  deregulation 
and  rising  energy  prices,  transporta- 
tion costs  have  risen  markedly  as  a 
percentage  of  total  distribution  costs, 
and  distribution  costs  have  risen  as  a 
percentage  of  sales.  As  a  result,  the 
focus  of  distribution  management  in 
most  manufacturing  industries  has 
shifted  from  controlling  inventory  and 
warehousing  costs  to  much  greater 
emphasis  on  controlling  transporta- 
tion costs  and  supply. 

Insuring  the  price,  quality  and 
reliability  of  a  shipper's  transportation 
network  is  the  goal  of  distribution 
management.  Because  of  the 
increase  in  transportation  costs,  it  is 
more  important  than  ever  to  assure 
that  distribution  strategy  enhances  a 
company's  overall  corporate  goals 
The  greater  involvement  of  senior 
management  in  distribution  planning 
is  more  likely  as  a  result  of  the 
changes  and  challenges  brought  on 
by  transportation  deregulation. 

Many  critical  questions  should  be 
addressed  now  by  distribution  man- 
agers—whether to  supply  tranporta- 
tion  internally  or  buy  outside;  how  to 
alter  the  configuration  of  warehouses 
and  distribution  centers;  whether  to 
cooperate  with  other  shippers;  how 
often  to  ship  and  in  what  quantity; 

what  mode  to  select  and  how  to  influ- 
ence its  supply  and  cost 

Whatever  advantages  a  shipper's 
distribution  system  once  enjoyed  may 
be  nullified  as  a  result  of  deregulation. 
It  is  important,  therefore,  for  shippers 
to  analyze  the  strategic  direction  of  the 
company  in  relation  to  competitors 
and  to  changes  in  the  transportation 
market,  to  insure  long-term  supplies 
of  transportation,  and  to  develop  a 
distribution  strategy  that  allows  maxi- 
mum flexibility  to  react  when  service 
and  cost  factors  change.  One  major 
manufacturing  firm's  new  facility  in 
California,  for  example,  has  been  built 
to  operate  efficiently  with  both  a  truck- 
or  rail-dependent  distribution  system. 
While  this  type  of  plant  configuration 
may  not  be  feasible  for  most  shippers, 
an  activist  role  is  important. 

Results  of  a  survey  recently  con- 
ducted by  Booz-Allen  &  Hamilton 
indicated  that  shippers  are  taking 
steps  to  minimize  potential  supply 
disruptions,  secure  more  favorable 
services  and  rates  from  carriers,  and 
circumvent  pricing  complexities. 
These  step  include: 

•  Shifting  plant  and  warehouse  con- 
figurations and  consolidating  ship- 

•  Reducing  inventories,  product 
lines,  and  shipment  frequencies; 

•  Streamlining  private  fleet  opera- 
tions and  stepping  up  the  use  of 
intermodal  systems  and  agents 

Distribution  managers  today  need 
broad  experience  in  planning  and 
implementing  corporate  strategy;  inti- 
mate knowledge  of  carrier  operations, 
regulatory  issues,  and  marketplace 
constraints;  and  willingness  to 
assume  a  higher  level  of  risk  and 
adopt  an  aggressive  negotiating 
stance.  The  more  distribution  costs 
rise  as  a  percentage  of  sales  and  the 
more  those  costs  vary  as  a  result  of 
deregulation,  the  more  strategically 
important  is  the  distribution  function. 

Shippers  may  enjoy  being  courted 

by  carriers  now,  but  in  the  longer  ij 
the  initial  glow  from  deregulation  n 
dim.  The  failing  health  of  many  can 
riers,  the  continued  deterioration  c 
transportation  facilities  and  equip- 
ment, and  increasing  managemer 
complexities  may  result  in  unreliat 
transportation  service  and  wide  fli 
tuations  in  price. 

Although  deregulation  is  not  the 
sole  cause  of  the  financial  distress 
the  transportation  industry,  the  inte 
price  competition  it  engendered  h 
certainly  exacerbated  problems  b 
lowering  both  revenues  and  marg 
Earnings  continue  to  be  too  low  to| 
meet  the  industry's  huge  investme 

Service  may  deteriorate  if  the 
industry  cannot  maintain  or  invest 
new  equipment;  marginal  routes  c 
customers  may  be  dropped; 
advances  in  technology  may  not  t 
forthcoming;  and  shippers  as  well 
carriers  may  not  be  able  to  make 
needed  investments  or  to  follow  b 
ness  plans. 

From  the  vantage  point  of  2  yea 
experience,  it  is  safe  to  say  that 
deregulation  has  been  a  mixed  bl 
mg.  Somereregulation  is  probabh 
inevitable,  and  shippers  may  evej 
ally  take  the  lead  in  calling  for  son 
stabilization  in  the  industry.  Nowtlf 
the  pendulum  has  swung  from  pel 
sive  regulation  to  substantial  relia; 
on  the  marketplace,  shippers  will 
that  the  ideal  position  is  probably 
somewhere  in  between. 

Booz-Allen  &  Hamilton,  Inc.  is  a  te 
nology  and  management  consult! 
firm.  John  F.  Wing  is  Managing  Ofj 
of  its  Transportation  Department's) 
Consulting  Division.  Also  contribi 
to  this  article  were:  Charles  W  He 
David  N.  DeBord,  Paul  O.  Robert: 
Leo  J.  Donovan. 

New  freedoms.  New  ideas. 
New  benefits  for  everyone. 

New  horizons 

-  ror  Hmencas  rreigni 


America's  freight  railroads  are  beinq  freed 

from  overregulation  and  the  real  winner  is 
the  public— the  consumers  of  rail-delivered 

With  less  government  interference  since 
the  passage  of  the  1980  Staggers  Rair  Act, 
railroadsare  better  able  to  compete  in  the 
marketplace.  Using  options  long  available 
to  other  businesses,  railroads  are  develop- 
ing innovative  marketing  programs  that  are 
making  rail  shipment  much  more  efficient 
and  cost-effective. 

For  example,  now  that  they  can  sign  long- 
term  contracts,  railroads  are  offering  price 
and  service  incentives  in  return  for  guaran- 
teed volume.  And,  with  the  deregulation  of 
piggyback  (the  movement  of  truck  trailers 
and  containers  on  rail  flatcars),  railroads 
now  are  free  to  change  rates  when  neces- 
sary to  meet  competition,  putting  more  traffic 
on  the  rails— and  less  on  the  highways. 

Reduced  regulation  has  given  railroaders 
the  opportunities  and  the  freedom  to  man- 
age more  efficiently.  Railroads  and  those 
who  ship  freight  by  railroad  benefit.  And  so 
do  the  final  customers  for  goods  shipped 
by  rail -the  public. 

For  more  information,  write:  "It's  Work- 
ing," Dept.  31,  Association  of  American 
Railroads,  1920  L  St.,  N.W,  Washington, 
D.C.  20036. 

Freight  Trains. 
America's  most  vital 
moving  force. 




e  middle  of  the  night, 
o  move  your  cargo  from  your  front 
door  to  its  destination  on  the  other  side  of  the  Atlantic. 

Including  intermodal  specialists  who  will  work  with  you  to  put  together 
the  fastest,  most  economical  route.  Thousands  of  containers  spotted  all  across 
the  country  to  give  you  quick  pick  up.  Roll  on /roll  off  service  for  freight 
that's  too  big  for  a  box.  Direct  calls  to  8  major  ports.  And  streamlined 
documentation  to  expedite  your  order. 

So  if  you've  got  cargo  bound  for  Europe,  don't  take  any  detours.  Go 
straight  to  your  ACL  agent  or  foreign  freight  ,  _ 

forwarder.  Or  write  Atlantic  Container  Line, 
80  Pine  Street,  New  York,  NY  10005. 
Phdne  (212)908-2244.  We're  the  major  carrier 
on  the,  North  Atlantic,  arad  that  makes  your 
;  city  one  of  our  major  ports. 


Atlantic  Container  Line. 
Number  I  to  Europe. 


Even  though  lease  obligations  are  sup- 
posed to  be  liabilities,  Michael  Swerdlow 
has  found  a  way  to  turn  them  into  assets 
for  some  big-name  bankrupt  companies. 

The  alchemist 
of  Chapter  11 

Swerdlow  is  a  bright  New  York  real 
estate  entrepreneur,  and  this  is  his 
powerful  idea:  When  a  retail  company 
goes  bankrupt,  it  often  wants  to  close 
many  unprofitable  stores  that  are  un- 
der long-term  lease.  What  are  those 
leases  but  one  more  liability  around 

By  Pamela  Sherrid 

ichael  Swerdlow  doesn't  wear 
a  black  cape  or  stir  a  steaming 
cauldron,  but  he  has  handed  several 
bankrupt  companies  what  amounts  to 
a  philosopher's  stone. 

Real  estate  consultant  Michael  Swerdlow 

"I  don't  need  to  pay  for  patina  now.  I  have  performed. 

the  poor  debtor's  neck,  right?  Wrong, 
figured  Swerdlow.  They  are  potential- 
ly a  very  big  asset. 

In  the  old  days  a  bankrupt  retailer 
would  typically  shut  his  stores  and 
disavow  the  leases,  leaving  him  open 
to  claims  from  the  landlord.  Alterna- 
tively, the  retailer  might  try  to  sell  his 
leases  essentially  for  the  salvage  value 
of  furniture  and  fixtures. 

But  Swerdlow,  a  Bronx-born  lawyer 
who  talks  and  eats  with  gusto,  some- 
times simultaneously,  perceived 
leases  in  bankruptcy  in  terms  of  their 
fundamental  real  estate  value.  Old 
leases,  negotiated  at  rates  below  the 
current  market,  ought  to  be  worth 
something  to  a  new  tenant,  he  fig- 
ured. Specifically,  they  would  be 
worth  the  capitalized  savings  be-^ 
tween  the  old  lease  rate,  say  $1  per 
foot,  and  the  going  rate,  say  $6  per 
foot.  "Swerdlow's  new  way  to  market 
leases  has  been  worth  hundreds  of 
millions  of  dollars  to  companies  un- 
dergoing Chapter  1 1  reorganizations," 
says  Farrell  Kupersmith,  a  bankruptcy 
expert  at  Touche  Ross. 

Swerdlow  has  profited,  too.  At  age 
39,  he  runs  his  own  collection  of  pri- 
vate companies  and  enjoys  the  good 
life  from  a  striking  penthouse  atop 
one  of  New  York's  tonier  East  Side 
hotels.  Swerdlow's  client  list  reads 
like  a  Who's  Who  of  troubled  busi- 
nesses. He  has  turned  leases  into  cash 
for  Food  Fair,  Korvette  and  J.W.  Mays, 
and  he  just  landed  the  Wickes  ac- 
count— the  biggest  retailer  ever  to  file 
under  Chapter  11. 

Like  Isaac  Newton  under  his  tree, 
Swerdlow  came  to  his  insight  through 
a  painful  blow.  He  ran  a  healthy  sale- 
leaseback  business  in  the  mid-Seven- 
ties and  was  retained  to  liquidate  Am- 
terre  Development,  an  owner  of  shop- 
ping centers.  Because  Amterre's 
financing  was  a  mess,  Swerdlow  was 
to  be  paid  a  part  of  whatever  he  could 
realize  above  a  $30  million  mini- 
mum. Then  the  Food  Fair  supermar- 
ket chain,  Amterre's  major  sharehold- 
er and  tenant,  went  under  (Forbes, 
Oct.  30,  1978).  "I  had  52  shopping  cen- 
ters all  tenanted  by  a  bankrupt  com- 
pany," Swerdlow  recalls.  "That  di- 
minished their  value — in  a  way." 

In  a  way?  Somebody  else  might 
have  bashed  his  head  against  Food 
Fair's  boarded-up  plate  glass.  Instead, 
Swerdlow  started  to  think  about  the 
very  low  rents  Food  Fair  had  been 
paying  and  the  possibility  of  selling 
its  leases.  "I  could  get  good  tenants 
into  the  Amterre  centers,  which 
would  be  good  for  me,  and  at  the  same 
time  raise  money  for  Food  Fair,"  he 

There  were  lots  of  legal  problems, 

FORBES,  OCTOBER  1 1,  1982 


If  it's  the  best 
telecommunications  system 

on  earth, 
why  on  earth  change  it? 

If  you've  ever  tried  to  make  a 
:elephone  call  anyplace  else  on 
jarth,  you  know  what  you've  got 
n  America.  The  best  telecom- 
nunications  system  in  the  world. 

But  now  you've  heard  the  Bell 
system  is  on  the  verge  of  major 
;hanges.  Changes  in  how  we're 
>rganized.  Changes  in  the  way  you 
an  choose  to  do  business  with  us. 

Why  change  something  that 

There's  a  very  good  reason, 
he  telecommunications  business 
self  has  changed. 

For  most  of  our  history,  the  Bell 
ystem  has  had  one  overriding 
oal:  universal  service.  Depend- 
}le  telephone  service  at  reason- 
Die  rates  for  everyone  who 
/anted  it. 

Bolstering  that  goal  were  gov- 
rnment  policies  determining  that 
slephone  companies  would  oper- 
te  differently  from  most  Amer- 
:an  companies.  Within  many 
reas  of  the  country,  we  were  to 
e  the  exclusive  supplier  of  tele- 
ommunications  services, 
.nd  since  the  Bell  System  didn't 
perate  in  a  competitive  market, 

its  rates  and  profits  were  strictly 
regulated  by  the  government.  But 
today  the  goal  of  universal  service 
has  been  achieved.  Over  96%  of 
American  households  have  tele- 
phone service. 

Now  regulators  and  legislators 
in  this  country  are  looking  more  to 
the  marketplace  and  competition, 
rather  than  to  regulation,  to  decide 
who  will  provide  competitive  ser- 
vices and  equipment  and  how  they 
will  be  priced.  In  part,  this  stems 
from  an  increasing  sentiment  in 
this  country  for  the  deregulation  of 
major  industries. 

But  perhaps  most  important  is 
the  fact  that  technology  has 
changed  the  future  of  telecom- 
munications. We  are  about  to  en- 
ter a  new  era -the  Information 
Age.  The  technology  of  communi- 
cations gradually  has  merged  with 
that  of  computers.  The  marriage 
of  these  two  technologies  offers 
the  potential  for  an  impressive 
array  of  new  customer  services. 
However,  the  blending  of  these 
two  technologies  has  also 
blurred  the  boundaries  between  a 
traditionally  regulated  industry - 

communications -and  the  unreg- 
ulated data-processing  industry 

The  combination  of  all  these 
factors  has  led  to  a  rethinking  of 
public  policies  on  telecommunica- 
tions. These  changes  will  require 
some  changes  in  the  Bell  System. 
But  we  can  assure  you  that  your 
telephone  service  will  still  be 
the  best  telecommunications  sys- 
tem on  earth. 

Along  with  your  local  Bell  tele- 
phone company,  we'll  be  telling 
you  about  any  changes  as  they 
occur.  In  ads  like  this. 

In  each  of  these  ads  you'll  find  a 
telephone  number.  That  number  is 
an  important  part  of  our  "Let's 
Talk"  program. 

This  program  has  been  set  up 
by  the  Bell  System  to  help 
you  understand  exactly  what  the 
changes  at  the  Bell  System  will 
mean  for  you  right  now.  And  in 
the  future. 

Call  us.  At  1 800  555-5000. 

There'll  be  somebody  to  talk  to. 
Somebody  to  help  you.  To  answer 
your  questions.  To  get  you 

inw,10us.  Let's  talk. 

(§)  Bell  System 

Most  products 
were  never  designed  to  be 
assembled  efficiently. 

If  your  products  are  like  most, 
they  were  designed  back  in  the 
days  of  inexpensive  labor  and 
inefficient  assembly  tech- 
niques. Now  there's  a  better 

And  Bodine  has  it.  It's  called 
automated  assembly.  And  it  can 
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ting your  personnel  'entory 
and  field  service  cos  fact,  it 
can  slash  your  overall :  of  as- 
sembly by  as  much  as  96 

What's  more,  all  it  allv 

takes  to  get  the  big  advantage 
of  automated  assembly  is  a  few 
small  design  changes  and  a 
Bodine  assembly  machine. 

To  learn  what  automated  as- 
sembly is  all  about,  write  for  our 
free  brochure.  To  learn  what  it 
can  do  for  you,  call  our  Vice 
President  Frank  Riley  at  (203) 

The  Bodine  Corporation,  317 
Mountain  Grove  Street,  Bridge- 
port, CT  06605. 



though,  starting  with  the  landlords. 
Some  of  Food  Fair's  leases  had  stan- 
dard clauses  stating  that  if  the  tenant 
went  bankrupt,  the  landlord  could 
immediately  cancel  the  lease — leav- 
ing Swerdlow  with  nothing  to  sell. 
But  he  wasn't  fazed.  "We  decided  to 
disregard  anything  negative  and  to 
proceed  in  a  totally  Pollyanna  fash- 
ion," Swerdlow  says. 

The  bankruptcy  court  wound  up 
agreeing  with  Swerdlow,  saying  that 
if  the  landlord  was  going  to  get  an- 
other good  tenant,  he  had  no  right  to  a 
windfall  from  Food  Fair's  troubles.  "If 
the  landlord  makes  a  bargain  at  $1  per 
foot,  why  should  he  benefit  by  raising 
rents,  when  the  value  should  go  to  the 

There  were  lots  of  legal 
problems,  but  "we  decided 
to  disregard  anything  nega- 
tive and  to  proceed  in  a  to- 
tally Pollyanna  fashion," 
Swerdlow  says. 

poor  widows  and  orphans  who  owned 
Food  Fair's  stock?"  Swerdlow  asks, 
reenacting  the  glories  of  his  argu- 
ment. This  right  was  up  for  grabs 
when  Food  Fair  failed  but  has  since 
been  codified  in  new  bankruptcy  law. 

After  three  years  of  hectic  auctions, 
Swerdlow  brought  in  over  $350  mil- 
lion for  Food  Fair's  real  estate — about 
$250  million  from  selling  leases,  the 
remainder  from  property  the  com- 
pany owned  outright.  "That's  a  hell 
of  a  lot  of  money  in  any  Chapter  1 1 
proceeding,"  says  Judge  John  Galgay, 
who  presided  over  the  case.  "It  was 
really  the  backbone  of  Food  Fair's 
reorganization  plan."  The  company, 
renamed  Pantry  Pride,  now  operates 
as  a  smaller  profitable  chain  in  the 

For  his  labors,  Swerdlow  earned  a 
fee  of  $10  million,  a  bargain  for  the 
creditors  compared  with  what  it 
would  have  cost  if  individual  brokers 
had  handled  Food  Fair's  hundreds  of 
properties.  But  Swerdlow's  company, 
Stone-East  Associates,  didn't  get  to 
keep  all  that  money. 

In  recounting  his  victory,  Swerdlow 
conveniently  omits  to  mention  that 
he  was  then  working  with  Eastdil,  the 
big  real  estate  investment  banking 
firm,  with  whom  he  has  now  parted 
ways.  "We  have  to  approve  any  con- 
sultant appointment  in  a  bankrupt- 
cy, "  recalls  a  banker  who  was  on  Food 
Fair's  creditors'  committee.  "Swerd- 
low was  an  unknown,  while  Ben  Lam- 


FORBES,  OCTOBER  11,  1982 

It  doesn't  take  big  money 
for  your  pension  plan 
to  benefit  from 
real  estate. 

Large  or  small,  many  pension  and  profit  sharing 
plans  could  benefit  from  an  investment  in  real 
estate.  It's  an  excellent  hedge  against  inflation.  The 
initial  cash  return  is  generally  higher  than  common 
stock  dividends.  And  real  estate  lessens  investment 
risk  through  portfolio  balance  and  diversification 
of  assets. 

One  problem  for  most  plans  has  been  that 
getting  into  real  estate  has  required  a  sizeable,  and 
often  prohibitive,  outlay  of  funds. 

Mot  any  more. 

With  the  new  Real  Estate  Separate  Account 
offered  by  The  Bankers  Life  of  Des  Moines,  your 
retirement  program . . .  even  defined  contribution 
plans... can  now  invest  in  real  estate  with  no 

minimum  deposit  required.  For  as  little  as  one 
dollar  real  estate  becomes  an  alternative  or  supple- 
ment to  the  usual  fixed  income,  equities  and  money 
market  options. 

And  The  Bankers  Life  has  the  background  and 
experience  any  investment  in  real  estate  requires. 
For  over  30  years,  we  have  been  dealing  nationwide 
in  commercial  real  estate. . .  $2.3  billion  in  mortgages 
and  almost  $500  million  in  property  development 
as  an  owner,  manager  or  joint  venture  participant. 

So,  if  your  retirement  plan,  big  or  small,  should 
be  considering  the  benefits  of  investing  in  real 
estate,  mail  the  coupon  below  or  contact  your  local 
Group  Office  of  The  Bankers  Life.  You'll  find  it  not 
only  possible . . .  but  profitable. 




The  Bankers  Life,  Group  Sales 
Des  Moines,  Iowa  50307 

I'd  like  to  know  more  about  the  different  kinds  of  Employee 
Retirement  Funds. 




Add  ress  



.  State - 



bert,  Eastdil's  president,  was  well 
known  to  many  of  the  senior  people 
in  the  bank.  That  added  a  patina  of 

After  Food  Fair,  Eastdil  and  Swerd- 
low  did  several  more  deals  together, 
but  now  are  competing  for  the  same 
business.  Eastdil  is  saying  unpleasant 
things  about  Swerdlow,  and  Swerd- 
low  is  saying  unpleasant  things  about 
Eastdil — and  Lambert.  "When  a  guy  is 
making  more  money  than  he's  enti- 
tled to,  of  course  it  annoys  him  when 
the  other  guy  leaves,"  Swerdlow  de- 
clares. "I  don't  need  to  pay  for  patina 
now;  I  have  performed." 

With  Swerdlow  calling  his  own 
shots  in  the  credibility  department, 
his  current  association  is  with  Drcxel 
Burnham  Lambert.  With  an  eye 
toward  Braniff  and  other  troubled  air- 
lines, they  have  set  up  a  new  company 
to  dispose  of  unwanted  transportation 
assets.  ("An  airplane  is  just  like  a 
building  that  flies,"  Swerdlow  ex- 
plains.) No  less  than  Harold  Gencen, 
chairman  emeritus  of  ITT,  is  a  direc- 
tor of  this  venture. 

Not  every  bankrupt  retailer,  of 
course,  can  expect  the  pot  of  gold  that 
Food  Fair  received — it  all  depends  on 
the  age  and  rates  in  the  company's 
leases.  "For  us,  it's  still  more  a  ques- 
tion of  limiting  liabilities,"  says  Mi- 
chael Vastola,  chief  financial  officer 
of  Lionel,  the  troubled  toy  retailer 
that  came  to  Swerdlow  for  help  in 
March.  Swerdlow  also  works  for  sol- 
vent clients  such  as  Outlet  Co.,  a 
broadcaster  that  is  moving  out  of  re- 
tailing. "What  Swerdlow  says  he's  go- 
ing to  do,  he  does,"  says  Bruce  Sund- 
lun,  Outlet's  president. 

Because  every  lease  that  Swerdlow 
tries  to  market  has  its  own  complicat- 
ed legal  and  financial  history,  his 
business  doesn't  lend  itself  to  a  cook- 
ie-cutter approach.  Negotiation  is  the 
name  of  the  game,  often  resulting  in 
unique  solutions,  such  as  the  whole- 
sale swapping  of  one  shopping  center 
for  another  when  the  immediate  prob- 
lem is  just  one  bankrupt  tenant.  Still, 
Swerdlow  has  a  Wang  computer  with 
his  own  file  breaking  down  retail 
stores  by  size,  type  of  business  and 
location.  "When  we  want  to  market  a 
property  we  push  a  button  and  the 
names  of  14  potential  candidates 
come  flying  out,"  he  says. 

Lately,  Swerdlow  has  been  working 
so  hard  that  he  has  not  been  able  to 
compete  in  the  yacht  races  that  usually 
keep  him  busy  when  he  is  not  closing  a 
deal.  He  has  boats  custom-built  for  big 
international  events  like  the  Miami 
Nassau  Race,  which  he  won  in  1980. 
But  what — heaven  forfend — if  retailers 
stop  going  bankrupt  ?  Will  Swerdlow  be 

the  first  victim  of  economic  recovery? 
He  pooh-poohs  that  idea.  "Food  Fair 
failed  in  a  rising  retail  economy,"  he 
says.- "If  management  is  bad  enough  to 
make  a  company  fail  when  times  are 
good,  then  I  can  really  do  a  good  job 
because  others  are  expanding." 

Nowadays,  of  course,  Swerdlow 
owns  real  estate  of  his  own  and  has 
plans  for  other  "special  situations  in- 
volving undervalued  assets."  Given 
his  winning  record,  chances  seem 
good  that  Swerdlow  will  turn  dross  into 
gold  even  in  a  shining  economy.  ■ 

There  is  more  to  Manville  s  financial  trou- 
bles than  those  asbestos  lawsuits. 

Why  didn't  the 
creditors  notice? 

By  Barbara  Rudolph 

,lion  Manville  Corp.  to  take  refuge 
in  Chapter  1 1  two  months  ago.  But 
asbestos  isn't  the  whole  story. 

Kidder,  Peabody's  Robert  Levine 
and  Barre  Littel — experts  in  cash  flow 
analysis — argue  that  you  could  have 
spotted  Manville's  main  problems  as 
far  back  as  1979.  The  company  earned 
$115  million  that  year,  but  its  excess 
cash  flow — the  amount  the  company 
actually  could  spend  on  growth — had 
already  begun  to  turn  negative,  as  de- 
clining earnings  were  compounded  by 
rising  interest  expense  and  cash  divi- 
dends. By  1980  excess  cash  flow  had 
sunk  to  a  negative  $137  million  and 
by  1981  it  was  a  negative  $222  mil- 
lion. Says  Littel,  "That  was  clearly 
inadequate  to  support  the  asset  base 
of  the  company."  A  Manville  spokes- 
man says  only  that  "we  take  excep- 
tion to  the  simplistic  assumptions"  of 
cash  flow  accounting. 

During  those  same  years  the  com- 
pany was  increasing  its  cash  divi- 
dends, from  $39  million  in  1978  to 
almost  $70  million  last  year  when 
Manville  paid  out  more  in  dividends 
than  it  earned. 

Over  on  the  balance  sheet,  Man- 
ville's problems  have  a  great  deal  to 
do  with  the  cost  of  an  unfortunate 
acquisition — asbestos  litigation  not- 
withstanding. In  [anuary  1979  Man- 
ville bought  Olinkraft,  Inc.,  a  forest 
products  company,  for  nearly  $600 
million,  or  about  15  times  earnings. 
They  shelled  out  almost  $300  million 

in  cash — "That  would  come  in  handy 
now,"  says  Kidder's  Littel — and  an- 
other $300  million  in  convertible  pre- 
ferred stock. 

It  is  unfortunate  that  Olinkraft  is  a 
forest  products  company,  a  business 
that  has  seen  hard  times  lately.  The 

acquisition  turned  out  to  be  "dilu- 
tive." Manville  saw  no  dollars  in  in- 
creased cash  flow  as  a  result  of  it. 
Only  dollars  going  out. 

Manville  counted  that  preferred 
stock  as  equity,  not  debt.  That  would 
mean  a  comfortable  debt-to-equity  ra- 
tio of  l-to-2.  But  is  that  preferred  real- 
ly equity?  It  contained  a  sinking  fund 
provision,  which  means  that  the  com- 
pany must  gradually  pay  back  the 
Olinkraft  stockholders.  If  you  reclas- 
sify that  stock  as  debt,  not  equity,  the 
company's  ratio  is  about  1-to-l — a 
distinct  deterioration.  Even  without 
the  asbestos  liabilities,  Manville  was 
not  a  paragon  of  financial  health.  ■ 


FORBES,  OCTOBER  11,  1982 


A  limited  edition  sedan  by  the  coachbuilder 
whose  luxury,  finish  and  finesse 
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•-jhe  Vanden  Plas  is  that  automotive 
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all  passengers  can  enjoy  armchair  corn- 
There  are  handy  map  pockets  for  rear 
passengers  and  two  swivel  reading 
3s.  Adding  luxury  to  luxury:  specially 
3r\  throw  rugs  have  been  fitted  over  the 
>eting.  Even  the  Vanden  Plas  colors  are 

special  and  exclusive  among  Jaguar  sedans. 

Yet  perhaps  the  most  attractive  feature  of 
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Series  III  at  heart.  This  means  that  the  car 
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Plas  handles  with  the  reflexes  of  a  sports 
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smooth  and  steady  stopping  power.  The 
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itself  automatically  once  you  have  selected 
your  preferred  temperature.  There  is  cruise 
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ing and  antenna,  and  a  new  AM/FM  stereo 
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Come.  Drive  this  most  elegant  edition  of  the 
best  Jaguar  ever  built.  For  your  nearest 
dealer,  call  toll  free:  (800)  447-4700,  or,  in 
Illinois,  (800)322-4400. 
M  Jaguar,  Leonia,  N.J.  07605 

"I  don't  think  any  other  computer  could  have 
grown  with  us  the  way  our  Datapoint  has." 

— Riley  Jackson 

VP,  Information  Systems 

First  Interstate  Bank  ol  Washington, 


First  Interstate  Bank's 
computer  was  the 
right  size  when  they 
bought  it,  and  stayed 
the  right  size  as  the 
company's  data  pro- 
cessing needs  grew. 
That's  because  they 
bought  Datapoint's  expandable  comput- 
er system,  the  ARC"'  local  network. 

The  ARC  is  expandable  in  a  way  no 
other  computer  is.  You  can  actually 
increase  its  computing  power.  So,  when 
First  Interstate  wanted  their  computer 
to  do  more  work  for  more  people,  they 
just  plugged  in  more  Datapoint  proces- 
sors, storage  disks,  terminals,  and 
printers.  The  ARC  wasn't  slowed  by  the 
added  work  because  they  were  adding 
computing  power  with  each  expansion. 

"So  far  we've  expanded  our  adminis- 
trative computer  system  from  30  users 
to  more  than  100,"  Jackson  says.  "The 
expansion  steps  are  so  simple  that  I  really 
don't  pay  much  attention  any  more.  If 
somebody  has  a  cost-justifiable  job  he 
wants  to  do  with  the  ARC,  we  just  plug 
in  the  new  equipment  he  needs  and  he's 
on  the  system.  The  other  users  are 

"Compare  that  to  the  huge  effort  that 
usually  goes  into  upgrading  a  company's 
computer.  Upgrading  the  ARC  is  sim- 
pler than  buying  a  company  car." 

Never  again  face  the  hassles 
of  computer  replacement 

With  the  ARC,  your  company  is  spared 
the  trauma  of  outgrowing  its  computer 
and  starting  over  with  a  bigger  one.  And 
because  the  ARC  :  stem  is  expand- 
able, you  can  keep  all  your  people  on  one 
system.  You're  never  forced  to  keep 

Computing       Small  — ^ 

power  computer 

Over  's  replaced 

To  grow  with  ordinary  computers,  you  throw  out  a 
little  one  and  bring  in  a  bigger  one.  You  almost  always 
have  too  much  computer  or  too  little. 

duplicate  files  in  several  computers. 

Some  other  companies  call  their  com- 
puters "expandable."  But  check  to  see 
what  that  really  means.  For  some, 
"expandable"  means  there's  a  bigger 
computer  in  the  product  line  so  you'll 
have  something  to  move  up  to  when  you 
outgrow  the  first  one.  For  others,  it 
means  you  can  add  more  memory.  For 
still  others,  it  means  you  can  connect 
several  computers  together  in  a  net- 
work. But  can  those  "expandable" 
systems  grow  in  processing 
power?  ARC  can. 

The  most  widely 
used  local  network 

Datapoint  pioneered  the 
concept  of  local  networks 
when  the  ARC  was  intro- 
duced more  than  five 
years  ago.  Now  there  are 
more  than  4,000  ARC 
systems  in  use,  far 
more  than  any  com- 
petitive system,  and  an 
experienced  service 
organization  supports 
them  worldwide. 

Datapoint  computer 
systems,  including  the 
ARC,  will  work  with 
Datapoint  word  pro- 
cessing, electronic 

With  Datapoint 's  expandable  computer,  you  can  add 
computing  power  in  small,  inexpensive  increments, 
closely  matching  capacity  of  the  system  to  user  needs. 

message,  and  telephone  systems.  You 
can  assemble  a  single,  comprehensive 
information  system  and  that  system  will 
be  expandable,  too. 

For  more  about  Datapoint,  call  (800) 
531-5639.  In  Texas,  call  (800)  292-5099. 
Telex  767300  in  the  U.S.;  06986622  in 
Canada;  or  923494  in  Europe.  Or  write 
Datapoint  Corporation,  Corporate 
Communications  T41FB,  9725  Data- 
point  Drive,  San  Antonio,  Texas  78284. 


The  Payless  Cashways  home  center  chain 
grows  a  lot  bigger  by  encouraging  its  man- 
agers to  get  a  little  richer. 

Do  it  yourself 

By  Lisa  Gross 

hardware  stores — now  called 
b  home  centers — that  supply  the 
tools  of  do-it-yourself  home  repair  to 
America's  suburbanites, 
fast-growing  Payless  Cash- 
ways  Inc.  does  one  thing 
better  than  the  others, 
and  that  may  be  the  se- 
cret of  its  success:  It 
gives  its  store  managers 
more  autonomy  and  great- 
er incentives. 

The  manager  of  any  of 
98  Payless  Cashways  or 
Furrow  stores  in  the  Mid- 
west and  Southwest  con- 
trols the  store's  inventory, 
is  responsible  for  pricing 
and  local  advertising, 
charts  the  store's  own 
business  plan  and  hands  it 
to  headquarters — not  the 
other  way  around.  He  sets 
the  net  profit  margin  goals 
that  govern  the  incentive 
bonus.  The  Payless  Cash- 
ways  managers — many  of 
them  with  college  de- 
grees— earn  salaries  that 
range  from  $22,000  to 
$38,600,  plus  3%  of  the 
store's  pretax  profits,  and 
as  much  as  25%  more  if 
certain  net  margin  goals 
are  met. 

Is  the  policy  successful? 
Look  at  the  results:  Since 
1971  Payless  Cashways 
has  grown  from  $36  mil- 
lion revenues  to  around 
$580  million  in  the  fiscal 
year  ending  Nov.  27.  Earn- 
ings have  grown  from  $1.8 
million  to  an  anticipated 
$23    million    this  year, 

with  return  on  stockholders'  equity  of 
more  than  20% . 

Where  did  Payless  come  up  with 
the  incentives  idea?  In  Pocahontas, 
Iowa  (pop.:  2,352),  home  of  the  first 
store  opened  in  1930  by  company 

Payless  Cashways'  Stanley  Covey  (left)  and  David  Stan/e\ 
"There's  a  good  ten  years  before  maturity." 

founder  Sam  Furrow.  As  Furrow 
opened  more  stores  in  Iowa  and  Min- 
nesota, he  gave  his  managers  a  piece 
of  the  ownership  of  each  subsequent 
store.  The  incentives  worked,  and  by 
1969,  when  Payless  went  public,  it 
had  16  stores  with  $18  million  sales. 

Furrow  had  a  few  other  ideas  that 
paid  off.  Payless,  unlike  most  hard- 
ware or  lumber  companies,  is  strictly 
cash-and-carry.  Why?  "You  have  to 
remember  the  building  environment 
after  World  War  II,"  explains  Chair- 
man J.  Stanley  Covey,  52,  whose  first 
job  in  1949  was  as  a  yard  worker  in 
Furrow's  second  store  in  Early,  Iowa 
(pop.:  670 — the  store  still  offers  free 
coffee).  "Anybody  in  a  retail  business 
tied  to  construction  had  difficulty 
with  accounts  receivable.  So  we  said, 
if  we're  going  to  eliminate  accounts 
receivable,  we  have  to  replace  it  with 
a  low  cash-and-carry  price."  Payless 
caters  to  the  homeowner,  not  the  lo- 
cal builder.  That  is  why  sales  have 
continued  to  grow  in  a  disastrous  peri- 
od for  new  home  construction. 

How  much  of  the  build- 
ing materials  market  does 
Payless  miss  by  refusing 
to  offer  credit?  President 
David  Stanley,  47,  esti- 
mates the  lost  market  at 
$18  billion  out  of  a  total 
$54  billion  home-im- 
provement market  last 
year.  But  it's  worth  it: 
"We  have  no  stores  depen- 
dent on  the  new  housing 
market,"  he  says. 

After  Payless  made  the 
decision  to  drop  credit  in 
the  late  Forties,  Furrow's 
stores  began  to  pool  their 
buying,  eliminating  the 
middleman  distributor  by 
going  directly  to  the  man- 
ufacturer. Not  a  new  idea 
now,  but  then,  when  the 
chief  competition  was 
mom-and-pop  hardware 
stores,  a  successful  idea. 

As  the  chain  has  spread, 
its  appetite  for  growth  has 
increased.  Where  it 
opened  two  stores  in 
1975,  it  is  now  opening  14 
or  15  a  year.  Stanley — 
who  left  the  executive 
vice  president's  post  at 
the  Minneapolis  broker- 
age firm  of  Piper,  Jaffray  & 
Hopwood  in  1980  to  take 
the  president's  job  at  Pay- 
less— looks  at  the  270 
stores  of  W.R.  Grace's 
home  center  division 
(which  includes  Handy 
Dan  Stores),  or  the  341  re- 


FORBES,  OCTOBER  11,  1982 

Meeting  Japan's  Challenge 

Eleventh  in  a  Series 



One  of  the  most  difficult  challenges  facing  American  business  has  been  to  find  a  way  to 
sell  to  the  Japanese  We  think  we  have  a  solution. 

It's  a  simple  strategy  and  involves  only  a  few  basic  steps.  But  it  has  worked  for  us. 

Instead  of  just  talking  about  building  quality  products,  years  ago  we  committed  our  entire 
;ompany  to  doing  it  And  in  living  up  to  that  commitment  we've  proven  that  with  the  right 
ipproach  American  manufacturers  can  meet  the  Japanese  on  their  own  home  grounds. 

A  big  key  to  success  is  having  a  strong  enough  commitment  to  get  through  the  tough 
nitial  stages.  We  learned  this  in  1978  when,  with  the  encouragement  of  the  U.S.  government, 
Motorola  decided  to  compete  for  some  of  the  electronics  business  traditionally  awarded  only  to 
apanese  companies  by  Japan's  giant  Nippon  Telegraph  and  Telephone  Public  Corporation. 

It  was  a  bold  undertaking  that  required  substantial  investments  of  time  and  money  In  fact, 
ust  to  enter  the  competition  it  was  necessary  to  complete  an  exhaustive  survey  of  competitive 
products  and  to  translate  and  study  all  the  pertinent  Japanese  specifications. 

But  if  you  want  to  sell  to  the  Japanese 
rou  have  to  make  the  effort.  So  we  did  it 

Then  we  did  something  even  tougher. 
/Ve  committed  ourselves  to  exceeding  the  quality 
itandards  they  set  for  us. 

And  succeeded.  In  early  1982,  after 
:ompetmg  with  a  number  of  Japanese  electronics 
nanufacturers,  Motorola  demonstrated  in 
igorous  testing  that  our  pagers  exceeded  NTT's 
eliability  standards,  while  complying  with  their 
;tnctest  price  and  delivery  requirements. 

As  a  result,  Motorola  was  officially  quali-  Made  in  America 

ied  by  NTT  as  a  supplier  of  pocket  pagers.  The 

irst  and  only  non- Japanese  firm  ever  admitted  to  this  heretofore  closed  group. 

Orders  for  over  50,000  Motorola  pocket  pagers  are  expected  this  year  alone 

In  striving  to  exceed  quality  and  reliability  standards,  though,  it  is  equally  important  to 
namtain  high  standards  of  customer  service. 

We  are  convinced  that  this  success  in  the  Japanese  market  is  due  largely  to  the  way  we 
ipproach  every  one  we  serve. 

It's  a  simple  common  sense  way  of  doing  business  that  says  we  pay  as  much  attention  to 
he  wants  and  needs  of  our  customers  as  we  do  to  the  quality  of  the  products  we  make  for  them. 

We  think  there's  one  other  basic  factor  that's  also  responsible  for  Motorola's  success  in 
ellmg  to  the  Japanese.  Our  participative  management  attitude. 

One  of  our  goals  is  to  make  every  Motorola  employee  in  every  Motorola  plant  an  effective 
)art  of  the  management  team  of  our  company.  And  because  employees  are  motivated  by  this 
:hance  to  participate  and  are  rewarded  for  their  efforts,  we've  found  we're  able  to  bring  to  bear 
)n  every  product  we  make  the  enthusiasm,  the  dedication,  and  the  attention  to  detail  that  result 
i  the  highest  kind  of  quality. 

The  kind  of  quality  that  has  allowed  an  electronics  company  like  Motorola  to  sell  in  a 
:ountry  where  they  make  some  fine  electronics  themselves. 

(^)  MOTOROLA  A  World  Leader  in  Electronics 
Quality  and  productivity  through  employee  participation  in  management 

t)  1982  Motorola  Inc  Motorola  and  (W)are  registered  trademarks  ol  Motorola,  Inc 




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tail  building  products  outlets  of  Evans 
Products,  and  says,  "There's  a  good 
ten  years  before  this  company  suffers 
maturity."  Accordingly,  the  stock 
market  gives  Payless  a  growth  com- 
pany's price/earnings  ratio,  approxi- 
mately 15  times  anticipated  1982 
earnings  of  SI. 90  per  share. 

The  multiple  helps  Payless  finance 
its  rapid  growth.  Last  year — with  its 
long-term  debt  already  at  38%  of  cap- 
italization— the  company  sold  1 . 1  mil- 
lion shares  of  stock  at  $22.50  a  share, 
almost  16  times  its  1981  earnings.  But 
growth  multiples  are  as  delicate  as 
eggshells  and  falter  at  the  slightest  hint 
of  an  earnings  downturn.  A  chain  so 
dependent  on  the  performance  of  indi- 
vidual managers  is  bound  to  come  up 
short  now  and  then.  It  happened  to 
Payless  when  the  chain  ventured  into 
the  Houston  market  in  1979.  Payless 
opened  five  stores  in  suburban  Hous- 
ton, appointed  the  store  managers  and 
waited  for  the  normal  pattern  of  profit- 

To  finance  its  rapid  growth 
Payless  sold  stock  at  al- 
most 16  times  1981  earn- 
ings. But  growth  multiples 
falter  at  the  slightest  hint 
of  an  earnings  downturn.  A 
chain  so  dependent  on  the 
performance  of  individual 
managers  is  bound  to  come 
up  short  now  and  then. 

ability  in  the  first  year.  But  the  earnings 
lagged  because  store  managers,  though 
recruited  from  elsewhere  in  the  chain, 
were  new  at  their  specific  jobs  and  to 
metropolitan  areas. 

That  said,  there's  no  doubt  that 
Payless  Cashways  and  similar  home 
center  chains  are  islands  of  prosperity 
in  a  dismal  time  for  housing.  New 
houses  are  not  getting  built,  making  it 
all  the  more  economical  to  fix  up  the 
old  ones.  For  the  suburban  homeown- 
er, reluctant  to  pay  the  labor  rates  of 
professional  plumbers  and  carpenters, 
the  30,000-square-foot  Payless  Cash- 
ways  store — where  all  the  necessary 
equipment  comes  with  advice  on 
such  things  as  door  hanging  and  fau- 
cet replacement — seems  the  answer 
to  a  prayer.  And  the  Payless  Cashways 
store  managers  know  their  custom- 
ers. That  is  why  they  stock  the  shiny, 
expensive  new  faucets  at  eye  level  and 
the  plainer,  cheaper  ones  at  floor  lev- 
el, where  the  customer  must  hunker 
down  to  reach  them.  The  extra  margin 
on  the  shiny  faucet,  after  all,  helps  with 
the  manager's  incentive  bonus,  and 
helps  keep  Payless  Cashways  Inc.  at 
the  top  of  the  do-it-yourself  market.  ■ 

ii  ic 

FORBES  OCTOBER  11,  1982 

JANUARY 1,1983. 

THE  1981  TAX  LAWS. 

The  tax  laws  of  1981  affected 
investment  tax  credits,  depreciation 
and  residuals.  But  you  can  still  take 
advantage  of  the  1981  laws  benefits 
by  signing  a  Ryder  lease  now  and 
putting  new  Ryder  trucks 
in  service  before 
lan.  1, 1983. 

And  if  you  act  now  you  get  trucks 
at  1982  prices. 


The  efficiency  of  Ryder-leased 
trucks  reduces  the  cost  of  truck 
operations,  frees  up  capital  and 
management  time.  The  cost  of  the 
lease  is  a  tax  deduction  and 
since  it's  an  operating 
lease,  it  improves 
your  financial 


Get  together  with  a  Ryder 
transportation  expert.  He'll  work 
with  you  and  determine  if  truck 
leasing  makes  sense  for  you.  If  it 
does,  Ryder  tax  experts  will  work 
with  your  financial  people  and 
come  up  with  the  most  attractive 
tax  structure. 



A  Ryder  truck  lease  can  give 
you  a  more  efficient  transportation 
system  and  tax  advantages.  Call 
the  nearest  Ryder  District  Office 
or  mail  the  coupon  now. 








RO  BOX  520816 


A  SkRVICL  Of  R)l»  R  SYSII  M 

An  Arizona  utility  is  showing  the  world 
how  to  expand,  raise  capital  and  still  keep 
both  regulators  and  shareholders  happy. 

I  ight  light 

By  Toni  Mack 

T|ucson  Electric  Power  is  not 
your  average  stodgy  utility.  It 
slipped  through  a  loophole  last 
year  to  sell  $289  million  in  tax- 
exempt  bonds — and  not  mere  pollu- 
tion-control bonds  either — and  is 
playing  arbitrage  with  the  proceeds. 
It  gives  executives  stock  options, 
which  would  of  course  be  almost 
worthless  at  most  electric  companies. 
At  a  time  when  many  utilities  are 
relieved  to  be  finished  with  crippling 
capital  programs,  Tucson  Electric  is 
expanding  generating  capacity  by 
half,  about  a  decade  before  the  rate- 
payers will  need  it.  And  was  there 
ever  a  utility  that  went  in  for  a  $15.5 

million  rate  increase  and  was  offered 
$17.6  million? 

The  explanation  for  Tucson  Elec- 
tee's good  fortune?  Most  observers 
agree  it  is  Theodore  M.  Welp,  the  util- 
ity's 48-year-old  president.  "He  seems 
to  pull  these  things  out  of  the  thin  air, 
year  after  year,"  says  analyst  Barry 
Abramson  of  Merrill  Lynch.  Tucson 
Electric 's  20%  net  profit  margin  on  its 
$350  million  in  1981  revenues  is 
about  double  the  industry  average. 
Earnings  per  share  were  up  24%  last 
year,  to  $2.94 — and  that's  before  an 
86-cents-a-share  extraordinary  gain. 

At  a  recent  22 — up  about  70%  from 
two  years  ago — Tucson  Electric  com- 
mon sells  at  a  20%  premium  to  book 
value,  while  most  utilities  slumber  at 


Tucson  Electrics  President  Theodore  M  Welp 

Selling  electricity  to  other  utilities  makes  power  cheaper  for  Tucson. 

90%  of  book  or  less.  Says  one  admirer: 
"Ted  Welp  is  going  to  show  you  how 
you  can  get  rich  by  being  a  utility 
executive,  and  still  keep  everyone 

Yet  taking  the  helm  at  Tucson  Elec- 
tric looked  more  like  a  suicide  mis- 
sion when  Welp  came  aboard  in  1974. 
Welp,  who  had  gotten  his  B.S.  in  fi- 
nance on  a  baseball  scholarship  at 
Santa  Clara  University,  was  then  trea- 
surer of  Pacific  Gas  &  Electric.  He 
could  have  looked  forward  to  the 
cushy  financial  vice  president's  job  at 
that  cumbersome  utility.  Instead,  he 
took  on  Tucson  Electnc's  financial 
mess.  The  company  had  been  spend- 
ing as  much  as  it  took  in  in  revenues 
each  year  to  double  its  generating  ca- 
pacity. Then  the  oil  embargo  hit,  and 
all  that  capacity  was  an  expensive 

So  Welp  made  a  virtue  of  necessity. 
He  found  utilities  to  buy  the  excess. 
Now  Tucson  Electric  sells  a  third  of 
its  output  away  from  home,  mostly  to 
California — land  of  "lifeline"  rate 
subsidies,  immediate  flow-through 
(until  recently)  of  investment  tax 
credits  and  other  opiates  for  the  elec- 
torate. Utilities  there  can't  get  the 
capital  to  switch  from  oil  to  cheaper 
coal  generation.  But  they  can  buy 
from  Tucson  Electric  at  1  to  2  cents 
per  kilowatt-hour  less  than  they  can 
produce  electricity  themselves. 

Result:  Tucson  Electric  is  in  such 
good  shape  now  that  it  can  fund  67%  of 
its  $1.3  billion  financing  needs 
through  1986 — for  a  coal  conversion, 
some  transmission  and  pollution  con- 
trol equipment  and  a  $612  million 
power  plant  due  to  open  in  1 985 — from 
capital  on  hand  and  future  cash  flow. 
Most  of  the  other  33%  will  come  from 
refunding  tax-exempt  debt. 

Those  healthy  finances  are  a  credit 
to  Welp's  fancy  footwork.  Under  an 
obscure  rule  meant  to  ensure  funds 
for  small  municipal  utilities,  a  utility 
that  sells  power  in  only  two  adjacent 
counties  may  issue  tax-exempt  debt 
in  any  amount  needed.  So  last  year 
Welp  sold  off  properties  in  one  of  the 
three  Arizona  counties  Tucson  Elec- 
tric served,  and  roild:  $289  million  at 
rates  slightly  above  9% — that  is,  3% 
to  5%  cheaper  than  on  conventional 
bonds.  Until  the  projects  get  under 
way,  Welp  has  been  arbitraging  the 
proceeds  at  double-digit  interest  rates. 
Tucson  Electric  earned  $26  million  in 
interest  income  last  year. 

To  raise  more  capital,  Welp  has 
been  turning  assets  into  cash.  Last 
year  he  transferred  at  cost  to  Utah 
International,  a  General  Electric  sub- 
sidiary, coal-processing  equipment 
and  subleases  on  70  million  tons  of 


FORBES,  OCTOBER  11,  1982 

coal.  Then  he  sold  the  leases  on  40% 
of  the  coal  to  institutional  investors 
at  a  $19  million  gain  to  Tucson  Elec- 
tric. Welp  expects  to  sell  more  coal 
leases  at  a  $30  million  gain  this  year, 
with  55  million  tons  still  left. 

It  may  seem  at  first  that  Welp  is 
selling  Tucson  Electric's  birthright, 
since  the  company  is  now  75%  coal- 
fired  and  plans  to  be  99%  coal-fired  by 
1991.  But  because  Utah  International 
can  make  better  use  of  depletion  tax 
breaks,  Welp  reckons  he  can  buy  the 
coal  back  as  needed  for  10%  less  than 
he  could  have  produced  it. 

The  fancy  footwork  could  not  have 
been  done,  of  course,  without  the  co- 
operation of  state  regulators — regula- 
tors so  benign  that  in  April  they  man- 
dated a  higher  rate  increase  than  the 
company  asked  for.  In  fact,  one  regu- 
lator, an  ex-union  official  who's  usu- 
ally outvoted  on  rate  requests,  has 
accused  Welp  of  trying  to  woo  him 
with  a  promise  to  use  union  labor  to 
build  a  power  plant.  But  the  Arizona 
regulators — and  Tucson  consumers — 
should  have  much  to  be  pleased 
about.  Though  Tucson  Electric's  resi- 
dential rates  are  still  slightly  above 
the  national  average,  those  rates  have 
risen  only  14%  in  the  last  five  years, 
while  the  national  average  has  shot  up 
49%.  Welp,  with  capital  in  hand,  has 
sworn  not  to  ask  for  anything  but  fuel 
adjustment  increases  until  1985.  And 
his  expansion  program  also  means 
savings  for  the  home  folks. 

Here's  how:  The  Tucson  Electric 
plant  due  to  open  in  1985  will  not  be 
needed  by  Tucson  until  1988.  By 
building  the  plant  three  years  early 
and  selling  its  output  elsewhere,  the 
company  can  both  avoid  construction 
cost  inflation  and  bring  the  plant  into 
its  rate  base  at  a  depreciated  cost — an 
estimated  35%  savings  for  Tucson 
consumers.  Similarly,  San  Diego  Gas 
&  Electric,  Tucson  Electric's  biggest 
outside  customer,  will  buy  enough  of 
a  second  plant's  output  from  1987  to 
1991  to  pay  for  20%  of  the  plant's 
cost.  "Each  year,  as  we  go  out  into  the 
future,  we  pull  back  the  cheaper  plant 
for  our  customers,"  says  Tucson  Elec- 
tric's Financial  Vice  President  J.  Rob- 
ert Johnston.  "It  means  a  good  deal  for 
our  customers,  a  comparatively  ex- 
pensive deal  for  San  Diego." 

It's  not  just  California  that  is  selling 
utility  customers  short.  The  same 
could  be  said  for  Michigan,  Missouri 
and  other  states  that  seem  to  view 
capital  formation  as  evil.  By  one  esti- 
mate, U.S.  utilities  need  to  spend  $50 
billion  to  switch  from  oil  to  coal. 
They  can't  do  it  without  a  warmer 
regulatory  climate — or  without  the 
inventiveness  of  a  Ted  Welp.  ■ 

FORBES,  OCTOBER  11,  1982 

h\t  We  Haw  Loved  f 
For  Centuries. You 
I  Will  Love  In  Seconds,  k 

Since  1608  it's  been  the  same  old  story. 
People  love  Old  Bushmills  the  second 
they  taste  it. 

Because  Old  Bushmills  is  smooth  and 
mellow.  A  smoothness  not  easily  come  by. 

The  secret  lies  in  an  ancient  process 
that  goes  back  centuries  to  Ireland.  To  the 
village  of  Bushmills,  and  the  oldest  whiskey 
distillery  in  the  world. 

Here  we  pick  the  local  barley  ripe  for 
harvest  in  nearby  fields. 

We  draw  clear  water  from  the  River  Bush, 
water  bom  for  whiskey. 

We  commit  these  and  other  choice 
ingredients  to  our  age-old  triple  distilla- 
tion process. 

Then  our  whiskey  matures  in 
handmade  oaken  casks. 

When  it  finally  comes  of  age  years 
later  only  then  is  it  worthy  of  our  label. 
Old  Bushmills. 

But,  like  18  generations  before  you, 
you'll  know  exactly  what  that  means. 
After  your  very  first  taste. 

ifiilii  ■-■  -1'ir'ir        i^m.i  I  I,,  - 1 

The  taste  you  don't  have  to  acquire, 

Distr  ibuted  data  processing  with  a  network  of  IBM  small  systems 


It  takes  the  right  tools  to  build 
distributed  data  processing  systei 
that  provides  up-to-date  informj 
tion,  when  and  where  it's  needec 
Ace  Hardware  Corporation  foun 
the  right  answer  in  a  network  < 
IBM  small  systems. 

An  IBM  8100  Information  Sy 
tern  in  each  of  Aces  regional  disti 
bution  centers  has  compressed  tl 
time  it  takes  to  process  orders  whi 
expanding  productivity.  The  810' 
are  tied  through  phone  lines  to 
large  IBM  computer  in  Ace's  hea> 
quarters  in  Oakbrook.  Illinois.  A 
-the  second  largest  chain  of  reti 
hardware  stores  in  the  U.S.-is  a  c 
operative  acting  as  a  wholesaler 

r  4,000  independent  retailers. 
Ace  has  a  reputation  for  service 
s  dealers,  so  the  8100  fits  neatly 
)  the  company's  operations, 
ith  the  8100,  we  cut  the  time  to 
cess  a  supplier  shipment  into  our 
;ntory  from  four  days  to  a  mat- 
of  only  four  hours,"  reports 
er  Peterson,  National  Distribu- 
Manager  for  Ace.  "With  the 
0  and  good  people,  we're  not 
king  harder.  Just  a  lot  smarter." 

Dramatic  Gains 

Peterson  adds  that  produetiv- 
in  Aces  distribution  centers, 
isured  by  the  man-hours  to 
cess  1.000  orders,  has  shown  a 

dramatic  30  percent  improvement 
over  the  past  three  years.  Put  an- 
other way,  it  costs  9.8  percent  less  to 
process  each  line  item,  despite  a  30 
percent  increase  in  wages. 

Easy  to  Use 

Ace  says  that  in  the  distr  ibution 
centers,  people  with  little  or  no  com- 
puter training  find  the  8100  easy  to 
use.  And  dealers  like  it  because  Ace 
has  become  an  even  more  reliable 
source  of  product  at  the  lowest  pos- 
sible cost. 

"We  demand  the  same  high  de- 
gree of  service  from  the  companies 
we  deal  with  as  our  dealers  expect 
from  us."  says  Jim  Van  Wert,  Aces 

Director  of  Information  Services. 
"With  IBM,  we've  always  received  it. 
from  the  people  who  helped  us  de- 
velop the  applications  to  service  rep- 
resentatives across  the  country  who 
can  get  there  fast  if  we  need  help. 

"Distributed  data  processing 
was  waiting  to  happen  at  Ace.  The 
8100  made  it  happen." 

To  learn  how  IBM  small  systems 
could  help  put  distributed  process- 
ing on  your  map,  write  to  IBM. 
1  Culver  Rd.,  Dayton.  NJ  08810.  Or 
call,  toll-free,  IBM  Direct  1 800  631- 
5S82,  Ext.  7. 

Alaska  and  Hawaii,  — —      

I  800  526-2484,  =  =£"  ==£= 
Ext.  7.  ===£~B 

How  Heinz  Tony  O'Reilly  kept  competitors 
at  bay  with  a  mix  of  firm  prices,  reduced 
costs  and  increased  advertising. 

Potato  peel 
and  prime  time 

Heinz  President  Tony  O'Reilly 

National  brands  have  overrun  regionals  "like  the  advancing  Red  Army." 

By  Eamonn  Fingleton 

hamburger,  take  a  look  at  that 
bottle  of  Heinz  Tomato  Ket- 
chup in  front  of  you.  See  any  differ- 
ence? Same  old  burger-splattering 
stuff  you  have  always  used,  right? 

Well,  not  quite.  H.J.  Heinz  Co. 
President  Anthony  J.F.  O'Reilly  has 
made  a  few  changes  in  his  company's 
best-known  product.  Oh,  you  prob- 
ably won't  notice  them.  He  has 
halved  the  cost  of  sweetener,  one  of 
the  most  expensive  ingredients  in 
ketchup,  by  substituting  fructose  for 
sugar.  Heinz  has  switched  to  bottles 
made  of  thinner  but  stronger  glass — 
thus  cutting  not  only  packaging  but 
transport  costs.  And  it  is  using  new 
breeds  of  fleshy  tomato  that  were  spe- 
cially developed  for  higher  solid  con- 
tent— enabling  Heinz  to  cut  its  toma- 
to tonnage. 

The  cost  blitz  on  ketchup  and  other 
Heinz  products  is  one-half  of  Heinz' 
battle  against  competing  brands  and 
against  generics,  which  elsewhere  in 
the  industry  have  been  eating  old-line 
brands  alive.  The  other  half  is  to  bom- 
bard consumers  with  $240  million  of 
advertising  and  promotion  a  year — 
twice  the  level  of  four  years  ago. 

O'Reilly,  a  Dublin-born  lawyer  who 
got  his  start  in  marketing  by  develop- 
ing a  new  brand  of  Irish  butter,  puts  it 
this  way:  "By  widening  our  margins 
we  have  created  reinvestable  funds 
that  we  have  spent  on  advertising.  We 
think  that  is  a  far  better  way  of  mar- 
keting our  products  lastingly  than  to 
engage  in  a  price  war." 

The  linchpin  of  his  strategy  is  to  go 
all  out  for  number-one  brand  status  in 
every  market.  "Being  number  one 
gives  us  economies  of  scale  and  at  the 
same  time  allows  us  to  put  a  few  extra 
pennies  on  the  price,"  O'Reilly  ex- 
plains. "That  gives  us  the  margins  for 
our  advertising.  And  advertising 
strengthens  the  brand." 

That  was  good  news  for  Campbell, 
whose  soups  Heinz  had  been  trying 
unsuccessfully  to  push  off  the  shelves 
for  years.  In  the  early  Seventies  Heinz 
pulled  out  of  the  soup  race  except  for  a 
residual  private-label  business.  It  goes 
against  the  grain  for  O'Reilly  to  make 
a  generic  product.  But  he  made  an 
exception  in  this  case,  partly  because 
of  the  big  writeoff  involved  in  scrap- 
ping an  efficient  modern  production 

So  far  O'Reilly's  market-leader 
strategy  has  shown  impressive  re- 
sults. While  holding  prices  more  or 
less  stable  in  real  terms,  Heinz'  mar- 
gins before  marketing  expenses  have 
climbed  steadily  from  5.7%  to  8.5% 


FORBES,  OCTOBER  11,  1982 

The  St.  Andrews  Links  Trust, 
rirough  the  300  Club  of 
it.  Andrews,  invites  you 
o  subscribe  to  a  limited 
leserved  Rights  Scheme 
t'hich  guarantees  a  week's 
;olfing  holiday  for  two  persons  over  a 
onsecutive  five  year  period,  at  a  cost  of 
■4,025  (inclusive  of  UK  tax)  payable  in 
atal  in  advance,  to  the  St.  Andrews 
.inks  Trust  bankers. 

With  a  distinctive  history  steeped  in  a 
;reat  tradition  of  royal  and  ancient 
portsmanship,  St.  Andrews  in  Scotland 
las  long  been  regarded  as  the  "Home  of 
loir,  and  for  most  players  it  is  the  most 
irestigious  playing  location.  Whether  it 
s  playing  host  to  top  class  professionals 
t  to  enthusiastic  amateurs,  no  other 
own  has  attracted  such  an  impressive 
nternational  following  and  so  greatly 
nflueneed  the  game's  development. 

*l  unique  opportunity 

Subscription  to  the  30( )  Club  offers  each 
nember  and  accompanying  partner  an 
ixclusive  holiday  package  embracing 
ted,  breakfast  and  dinner  in  a  twin- 
ledded  room  at  the  luxurious  Rusack's 
Marine  Hotel  and  several  rounds  of  golf 
m  all  the  courses  at  St.  Andrews 
including  the  world  famous  Old 
bourse) .  The  number  of  Reserved 
lights  is  limited  to  300. 

>t  Andrews  Links  Trust 

The  St.  Andrews  Links  Trust  operates 
mder  an  Act  of  Parliament  and  has  the 
ontrol  and  management  of  the  Links  of 
it.  Andrews.  Rusack's  Marine  Hotel  is 
vholly  owned  by  the  Trust  and  the  300 
"lub  of  St.  Andrews  has  been  set  up  by 

St  Andrews- 
the  home  of  Golf 

the  Trustees  as  a  very  exclusive  club  to 
provide  facilities  for  its  members  to  play 
golf  at  the  very  cradle  of  the  game  and 
live  in  gracious  and  comfortable 

St  Andrews  Links 
the  Old  and  the  New 

Each  Reserved  Right  entitles  a 
member  (or  nominee)  and  partner  to  play, 
over  one  week  a  total  of  seven  rounds 
on  the  St.  Andrews  Links,  according  to 
the  following  pattern:  2  rounds  on  the 
world  famous  15th  Century  Old  Course; 
2  rounds  on  the  19th  Century  New 
Course  (perhaps  more  demanding  and 
difficult  than  the  Old);  2  rounds  on  the 
delightful  20th  century  Eden  Course  and 
1  round  on  the  redesigned  19th  Century 
Jubilee  Course;  all  will  be  at  reserved 
times  booked  in  advance. 

Additional  rounds  can  possibly  be 
arranged  for  the  member  who  wants 
even  more  golf. 

Reserving  your  rights 

The  300  Club  Reserved  Rights 
Scheme  will  be  operational  for  five 
years  from  1983.  Applications  for  the 
first  year  should  be  received  by  31st 
December  1982.  To  help  in  the  allocation 
of  suitable  weeks,  member's  will  be 

\fery  Exclusive 

Golf  Club  "  ^ 

asked  to  indicate  three 
alternative  weeks  in 
order  of  preference. 
The  most  favourable 
will  then  be  selected 
according  to  order  of 
application  and  your  preference. 
Applications  for  subsequent  years  can 
be  submitted,  again  with  a  choice  of 
three  weeks,  between  1st  July  and  1st 
October  of  the  preceding  year. 

Each  week  will  run  from  Sunday 
lunch-time,  with  the  first  game  played 
on  either  the  Eden  or  the  New  Course 
(the  Old  Course  is  closed  on  Sundays) 
and  will  finish  at  approximately  the 
same  time  on  the  following  Sunday. 
Occasionally  particular  weeks  will  not 
be  available  because  of  major 
championships  and  similar  events  on 
the  Links. 

If  you  would  like  to  join  the  300  Club 
of  St.  Andrews,  or,  if  you  prefer,  would 
like  further  information  about  it,  simply 
complete  the  coupon  below  and  return 
it  to  the  St.  Andrews  Links  Trust.  Please 
note  that  membership  will  only  be  given 
on  receipt  of  the  full  payment  of  £4025. 
In  the  event  of  all  300  memberships 
already  being  taken  up,  your  money  will 
be  refunded  in  full. 

Payment  should  be  made  to  the 
Trust's  bankers  at  the  following  address: 
Royal  Bank  of  Scotland, 
113  South  Street, 
St.  Andrews,  Fife,  Scotland. 
Bank  Reference:  83-26-28. 
Account.  St.  Andrews  Links  Trust. 
Account  No.  00262139. ... 

Rusack's  Marine  Hotel 

Built  towards  the  end  of  the  last 
century,  Rusack's  Marine  Hotel  reflects 
the  charm  and  elegance  of  gracious 
living.  Today  it  boasts  high  standards  of 
sophisticated  contemporary  comfort. 

The  Hotel  overlooks  the' 1st  and  IStli 
fairways  of  the  Old  Course  and  the  Royal 
and  Ancient  Golf  Club  House,  with 
many  of  the  bedrooms  commanding 
superb  views  of  the  famous  Links.  A 
choice  of  rooms  will  be  offered  to  300 
Club  members  in  order  of  annual 
application,  a  significant  proportion  of 
which  will  have  views  over  the  Links 
although  this  cannot  be  guaranteed. 

To:  SL  Andrews  Links  Trust, 
Golf  Place,  St  Andrews, 
Fife,  Scotland,  KY16  9JA 

(1)  1  wish  to  become  a  member 
of  the  300  Club  of  St.  Andrews 
and  have  arranged  for  my  bank 
(  )  to  remit  the  full  cost 
to  your  bank. 

(2)  We  wish  to  become  a  corporate  member  with 
 number  of  Rights. 

(3)  I  wish  more  information  about  the  300  Club  of 
St.  .Andrews.  Please  send  me  a  copy  of  your 
free  colour  brochure. 

H-lete  as  appropriate 


Name/Company  Name 

(In  Block  Capitals) 


Meet  the  people 
who  eome  to 
The  Caymans. 

be  one  of  them! 

Mostly  professional  or 
managerial.  Business  executives. 
Lawyers,  doctors.  Lots  of  divers, 
honeymooners  and  families. 

Many  come  just  to  relax.  Enjoy 
the  near-perfect  weather.  Get  a  tan 
on  uncrowded,  unspoiled  white 
sand  beaches. 

Others  come  to  dive  or  snorkel  in 
the  world's  most  spectacular 
undersea  wonderland.  Play  tennis. 
Catch  a  big  one  off  Cayman  Brae. 
Or  go  bone  fishing  on  Little 
Cayman.  Or  just  do  nothing.  Read 
a  book  and  swing  in  a  hammock 
secure  in  the  knowledge  that  they 
are  in  a  British  Crown  Colony  with 
a  tradition  of  law  and  order  and  the 
highest  standard  of  living  in  the 
West  Indies. 

More  and  more  families,  friends 
and  couples  prefer  to  stay  in 
beautiful  apartments  with  fully 
equipped  kitchens.  Save  a  mint  on 
meals.  Or  tending  bar.  But  in  the 
evening,  most  dine  out  in  some  of 
the  finest  restaurants  in 
the  Caribbean. 

Since  there  are  no  casinos  and  no 
golf,  obviously  these  are  very 
special  people.  If  you  are  one  of 
them,  you  will  enjoy  the  Caymans. 

An  hour's  flight  from  Miami  on 
Cayman  Airways.  A  little  longer 
from  Houston. 

Good  travel  agents  know  about 
the  Caymans.  Or  write  or  call  for 
color  brochure.  (305)  444  6551. 

Cayman  W  Islam* 
Department  of  Tourism 

250  Catalonia  Ave. 
Coral  Gables,  FL  33134 

in  eight  years.  Meanwhile  marketing 
expenditures  have  been  raised  from 
1.4%  of  sales  to  3.3%.  Result:  After 
marketing  expenses,  net  margins  are 
up,  from  4.3%  to  5.2%.  According  to 
O'Reilly,  that's  second  only  to  Kel- 
logg's  8.9%  among  food  industry  ma- 
jors. Yet  as  recently  as  1974,  Heinz 
ranked  number  four,  after  Kellogg, 
Campbell  and  Norton  Simon.  Heinz' 
return  on  equity:  19.5%. 

In  earnings-per-share  growth, 
Heinz'  16.6%  a  year  is  the  best  among 
the  majors,  surpassing  even  such  thor- 
oughbreds as  Pillsbury  with  15%. 

One  of  O'Reilly's  most  satisfying 
success  stories  is  Star-Kist  tuna,  the 
company's  biggest  brand,  with  sales 
of  more  than  $300  million  a  year.  Its 
market  share  has  risen  to  nearly  30% . 
Ralston  Purina's  Chicken  of  the  Sea, 
which  for  years  vied  with  Star-Kist  for 
top  place,  has  dropped  to  a  reported 
23%.  And  Heinz'  tuna-based  Nine 
Lives  cat  food  has  captured  a  record 
35%  share,  up  from  30%  in  1977. 

Here  again,  the  advertising  push 
was  supported  by  cost  savings  in  pro- 
duction. O'Reilly  explains:  "For  our 
tuna  we  used  to  rely  chiefly  on  the 
catch  off  the  coast  of  Peru.  Today  we 
cover  our  requirements  from  bases 
that  are  literally  all  over  the  world — 
in  New  Guinea,  Puerto  Rico,  Ameri- 
can Samoa,  Truk  and  France.  We  have 
developed  a  network  that  gives  us  the 
lowest-cost  raw  tuna  of  any  major." 

But  O'Reilly  is  proudest  of  Heinz' 
Ore-Ida  processing  subsidiary.  Heinz 
bought  it  in  the  mid-1960s  when  it 
was  nearly  bankrupt,  and  in  the  last 
ten  years,  thanks  in  part  to  the  "All 
righta"  advertising  campaign,  has 
steamrolled  from  30%  of  the  retail 
french-fned-potato  market  to  55%. 
The  nearest  competitor  has  an  esti- 
mated 3%. 

He  waxes  lyrical  about  Ore-Ida's 
technology:  "Defect  removal  is  now 
done  by  a  bank  of  suction  devices  that 
are  like  a  sidewall  of  cannons  poised 
behind  an  electronic  eye  that  guides 
them.  We  now  just  have  an  enormous 
belt  of  glistening  white  potato,  where, 
before,  we  used  to  have  rows  of  wom- 
en standing  on  either  side  looking  for 
specks  and  bruises." 

Yield  per  100  tons  of  raw  potato  has 
risen  from  43  tons  of  finished  product 
to  52.  More  accurate  machines  mean 
less  is  thrown  away  in  peelings.  Sliv- 
ers too  small  to  make  french  fries  are 
now  used  in  a  smorgasbord  of  new 
products  like  Tater  Tots. 

O'Reilly  is  firmly  resisting  what  he 
regards  as  the  siren  call  to  mop  up  idle 
capacity  by  producing  for  the  generics 
industry.  He  says:  "If  I  tried  to  launch 
a  new  company  called  Generics  of 


America,  I  couldn't  raise  a  damned 
dollar  on  Wall  Street.  There  just  is  not 
the  margin  there." 

If  anything,  the  importance  of  big 
national  brands  will  increase  in  years 
to  come,  he  believes.  National  brands 
have  already  overrun  regional  brands 
"like  the  advancing  Red  Army":  Bulk- 
buying  discounts  mean  television  ad- 
vertising rates  are  much  lower  for  na- 
tional than  for  regional  advertisers. 
He  sees  more  and  more  viewers  being 
siphoned  off  by  cable  so  that  the  pull- 
ing power  of  the  big  prime-time 
shows  advertisers  love  will  be  under- 
mined. That  means  the  cost  of  estab- 
lishing a  new  brand,  already  $25  mil- 
lion minimum,  will  rise.  So  existing 
brands  will  be  that  much  more  shel- 
tered from  aggressive  newcomers. 

That  said,  O'Reilly  is  determined  to 
grab  more  than  his  share  of  the  new 
markets  that  do  emerge.  So  he  has 

O'Reilly  is  firmly  resisting 
what  he  regards  as  the  siren 
call  to  mop  up  idle  capacity 
by  producing  generics.  He 
says:  "If  I  tried  to  launch  a 
new  company  called  Gener- 
ics of  America,  I  could  not 
raise  a  damned  dollar  on 
Wall  Street.  There  just  is  not 
the  margin  there." 

been  concentrating  on  acquisitions. 
He's  patting  himself  on  the  back  for 
the  recent  purchase  of  Weight  Watch- 
ers International  for  $120  million.  A 
franchise  operation  that  offers  class- 
room programs  for  dieters,  Weight 
Watchers  had  been  experimenting 
with  a  line  of  low-calorie  foods,  but 
with  mixed  results.  Under  Heinz 
management,  Weight  Watchers  is 

O'Reilly  expects  Weight  Watchers 
to  grow  by  at  least  20%  a  year,  five 
points  faster  than  Heinz'  core  busi- 
ness. Already  products  and  services 
sold  under  the  Weight  Watchers  name 
gross  more  than  $400  million  a  year. 

Further  acquisitions  will  be  strictly 
in  the  grocery  business,  and  they  will 
probably  be  small.  Big  mergers  are  out 
for  Heinz  because  O'Reilly  thinks  the 
internal  political  problems  that  often 
result  are  not  worth  the  candle. 

The  easy  thing  to  have  done  when 
confronted  with  competition  from 
cheaper  no-name  products  and  sales- 
hungry  competitors  was  to  lower 
prices.  Instead,  Tony  O'Reilly  decided 
to  lower  costs  and  use  most  of  the 
proceeds  to  increase  advertising.  In 
the  process  he  may  have  rediscovered 
the  birthright  of  H.J.  Heinz.  ■ 

FORBES,  OCTOBER  11,  1982 


"Soon  the  New  York  skyline 
appeared  in  the  gray  sky,  dim  al 
first,  then  sharply  jagged,  and  j 
the  Statue  of  Liberty  moved 
toward  us... this  symbol  of  \ 
America — this  enormous 
expression  of  what  we  had  a!' 
been  taught  was  the  inner 
meaning  of  this  new  country 
— inspired  awe  in  the  hopefu1 

As  a  nation  we  are  not  eas-  j 
/Aily  awed  by  symbols. 
But  a  few,  like  the  1 5 1  -foot 
tall  work  of  the  French 
sculptor  Auguste  Bartholdi,  j 
have  taken  on  meanings 
well  beyond  those  intended 
by  their  creators.  Alone  and 
weathered,  the  durable  lady 
stands  at  the  front  door  of 
America  with  a  symbolic 
promise  of  a  better  life. 

But  to  fulfill  the  promise 
we  must  meet  today's  en- 
ergy needs,  while  building 
the  bridge  that  takes  us  to 
the  place  or  time  of  energy 
independence.  At  nutech 
we  are  mindful  of  this  need. 
Our  challenge  is  to  provide 
innovative  engineering  so- 
lutions to  virtually  any 
structural  or  systems  engi- 
neering problem.  Without 
consideration  to  comprom- 
ise. The  intent  is  basic.  The 
efficient  and  responsible 
application  of  existing  re- 
sources will  provide  the  op- 
portunities for  the  future. 

As  engineering  consul- 
tants to  the  nuclear  power, 
electric  utility,  petroleum, 
and  construction  industries, 
we  at  nutech  are  providing 
answers.  Offering  solutions. 
And  are  helping  make  the 
promise  a  reality. 


A  limited-edition  poster  ol  the  Statue 
of  Liberty  is  available  by  writing:  Nutech, 
6835-P  Via  Del  Oru,  San  lose,  CA  95119. 

The  automotive  industry  is  busy 
proclaiming,  with  maximum  media 
fanfare,  that  The  Thrill  Is  Back. 

Conspicuously  absent  trom 
the  festivities  is  the  BMW320L Which 
enjoys  a  certain  advantage  over 
those  cars  currently  welcoming  back 

The  advantage  of  never  having 
bade  it  farewell. 


The  320i's  engine  is  the  basis 
of  those  now  competing  success- 
fully on  the  International  Grand  Prix 
circuit,  engineered  for  both  heady 
responsiveness  and  the  grueling 
test  of  endurance  runs. 

Its  steering  and  suspension  are 
fine  enough  for  the  quick,  reflex 

corrections  that  driving  conditions 
of  all  kinds  make  necessary.  And 
both  are  complemented  by  a  gear- 
box whose  "jeweled  action  and 
surgical  accuracy  invite  you  to  play 
stickshiftconcertos"(Carand  Driver) 

In  fact,  the  story  of  BMW  is  a 
story  of  refinement— uninterrupted 
refinement  supported  by  a  higher 
proportional  investment  in  research 

"Based  on  average  retail  selling  price  Your  selling  price  may  vary  according  to  the  condition  oi  your  car  and  whether  you  sell  it  privately  or  to  a  dealer  *See  your  BMW  dealer  for  complete  details. 
©  1982  BMW  of  North  America.  Inc.  The  BMW  trademark  and  logo  are  registered  trademarks  of  Bayensche  Motoren  Werke.  A  G. 

nd  development  than  any  other 
European  car  maker.  Placing  be- 
ween  the  320i  and  various  rivals  a 
listance  unlikely  to  be  made  up  in 
he  current  model  year,  the  magic 
i  marketing  notwithstanding. 
The  BMW320i  also  outdistances 
nost  other  cars,  not  to  mention 

many  investments,  in  sheer  preser- 
vation ot  capital. 

According  to  the  April  1982 
N  ADA  Used-Car  Guide,  the  average 
320i  sold  during  the  past  3  years 
has  retained  an  astonishing  95.7% 
of  its  original  purchase  price* 

Your  investment  is  further  pre- 
served by  BMW's  3-year/36,000- 
mile  limited  warranty  and  a  6-year 

limited  warranty  against  rust  per- 

All  of  which  sets  the  320i  apart: 
a  genuine  high-performance  sedan 
that  also  helps  you  rediscoverthe 
thrill  of  solvency. 

We  invite  you  to  dis- 
cover and  test  drive  it  at 
your  nearest  BMW  dealer' 


Give  Data  Generals  managers  credit  for 
courage,  but  also  question  why  the  com- 
pany savored  its  early  success  too  long. 

jtter  late? 

By  Kathleen  K.  Wiegner 

T|  wo  years  ago  Edson  de  Castro, 
founder  and  president  of  Data 
General  Corp. — one  of  the  fast- 
est-growing companies  of  the  Seven- 
ties— was  a  wealthy  man.  His  aggres- 
sive minicomputer-making  company 
seemed  still  to  be  rolling  along,  earn- 
ings rising  9.8%,  to  $55  million,  on 
$654  million  revenues  in  the  1980 
fiscal  year.  The  stock  sold  at  87,  its 
highest  point  ever,  giving  de  Castro  a 
fortune  on  paper  of  more  than  $27 
million.  Data  General's  cofounders, 
Herbert  Richman  and  Frederick  Ad- 
ler — who  with  de  Castro  had  set  up 
DG  in  a  converted  beauty  parlor  in 
1968 — had  stock  worth  $20  million 
and  $12  million  respectively. 

But  in  that  summer  of  1980,  Data 
General  was  at  a  fork  in  the  road.  Its 

momentum  was  slowing,  and  its 
hard-selling  tactics  were  increasingly 
out  of  step  with  a  changed  market- 
place. The  time  had  come  for  manage- 
ment to  change  Data  General  or  to 
sell  it  and  reap  the  harvest  of  their 
remarkable  12-year  achievement. 

The  founders  had  a  reputation  as 
the  most  unsentimental  of  men. 
Their  goal,  as  set  out  on  splashy  bill- 
boards, was  to  build  the  richest  mini- 
computer company  in  the  world. 
Their  DG  was  a  hard-charging  maker 
of  reliable,  cheap  computers  that  sold 
to  customers  knowledgeable  enough 
to  do  their  own  programming  and  to 
fix  the  machines  when  they  broke 
down.  DG  salesmen  sold  hardware; 
they  didn't  wait  around  to  service  it. 
And  they  gloried  in  the  sobriquet 
"bastards,"  being  with  the  company  it 
was  fun  to  hate.  Even  today  ex-DG 

Data  General's  Edson  de  Castro  and  Herbert  Richman 
"Bastards"  no  more. 

employees  meet  yearly  as  the  Former 
Great  Bastards  of  the  Universe  to  sing 
a  ditty  with  lines  like  "Hold  the  sales, 
hold  the  service,  special  systems 
make  us  nervous.  .  .  ." 

Yet  when  it  came  to  decision  time 
in  1980,  the  founders  chose  not  to  sell 
out  but  to  pursue  the  larger  dream  of 
building  a  complex  organization.  De 
Castro  called  his  top  executives  to  a 
meeting  on  Martha's  Vineyard,  off 
Cape  Cod,  and  there  mapped  the 
changes  that  would  transform  DG 
into  a  broad-based  supplier  of  com- 
puters and  office  automation.  Out 
went  small-company  informality,  in 
came  divisional  structure.  Bastards  no 
more,  DG  would  be  the  company  to 
"engineer  the  anxiety  out  of  comput- 
ers" for  a  new  mass  market  of  com- 
puter users  who  demanded  service 
and  help  with  software. 

De  Castro,  a  reflective  man  of  44 
who  had  designed  several  of  Digital 
Equipment's  first  minicomputers  in 
his  mid-20s  and  left  Digital  to  found 
rival  DG  at  30,  was  thinking  of  the 
ages.  "American  companies,"  he 
muses,  "appear  remarkably  success- 
ful at  creating  technologies,  products 
and  markets.  But  usually  only  for  one 
generation.  We  produce  few  encores." 

To  date,  DCs  attempt  at  encore  has 
been  painful.  Six  vice  presidents  have 
left,  many  to  start  or  work  for  small 
companies  that  will  compete  with 
Data  General.  Turnover  in  the  sales 
force,  always  high  in  this  industry, 
swelled  well  above  the  industry  aver- 
age of  25%  to  30%.  Software  develop- 
ment for  the  company's  entry  into 
personal  computers  got  so  snarled  up 
in  the  reorganization  that  the  ma- 
chine arrived  with  almost  no  soft- 
ware, badly  limiting  its  sales. 

Earnings  in  fiscal  1981,  excluding 
an  extraordinary  gain,  fell  to  $41  mil- 
lion from  $55  million  in  1980,  and 
fiscal  1982  (ended  Sept.  25)  was  worse, 
an  estimated  $19  million — off  54%. 
Net  profit  margins  were  only  about 
2.4%  in  the  year  just  ended,  where 
once  the  company  earned  over  1 1 
cents  on  each  sales  dollar. 

DG  stock  sold  recently  at  27,  less 
than  one-third  of  its  historic  high,  and 
de  Castro's  paper  fortune  has  been 
reduced  to  around  $9  million,  Rich- 
man's  and  Adler's  to  $7  million  and 
$4  million.  Yet  the  atmosphere  is  not 
gloomy  at  DG's  austere  headquarters 
in  Westboro,  Mass.  De  Castro  is  con- 
vinced the  worst  is  behind  him,  and 
Richman,  the  organizer  of  the  sales 
force,  declares:  "We  still  have  a  lust 
for  making  money,  but  if  we  satisfy 
customers  we'll  do  that — and  get 
more  money  for  our  services." 

The  company  has  invested  heavily 

1  18 

FORBES,  OCTOBER  11,  1982 

Merrill  Lynch  Commodity  Maxims: 


Consider,  for  example,  the  inaction  that  says  you  re 
speculating  on  your  company's  future.  All  you  have  to  do  is 
not  take  steps  to  manage  risks,  such  as  interest  rate,  foreign 
currency  or  inventory  price  fluctuations.  In  effect— without 
even  realizing  it— you  become  a  speculator,-  and  unwitting 
speculation  can  be  risky 

Astute  risk  management,  on  the  other  hand,  can 
give  you  both  protection  and  a  marketing  advantage  over 
less  alert  competitors.  The  key  is  working  with  an  Account 
Executive  who  understands  the  complexities  of  hedging 
and  has  the  resources  to  help  you  do  it  right. That's  precisely 
what  you'll  find  at  Merrill  Lynch. 

Most  of  our  Account  Executives  specialize  in  partic- 
ular areas,  such  as  financial  futures,  grains  or  metals.  Many 
of  them  learned  their  skills  by  working  in  those  industries 
before  coming  to  Merrill  Lynch. 

They  have  access  to  top-rated  research  covering 
every  major  futures  market  in  the  world— research  that 
gains  an  added  edge  through  the  creative  use  of  computer 

They  receive  information  fast  through  our  worldwide 
private  communications  system,  and  use  the  same  system  to 
assure  prompt  execution  of  orders. 

Merrill  Lynch  is  a  force  on  every  major  futures 
exchange  in  the  world.  And  most  important,  our  company 
is  here  to  stay.  Merrill  Lynch  has  a  long-term  commitment  to 
our  customers  and  impressive  financial  resources  to  back  it  up. 

If  you  should  be  managing  your  company's  risks 
more  carefully,  don't  speculate  on  where  to  go.  Call  and 
ask  for  a  copy  of  The  Merrill  Lynch  Guide  to  Hedging.  The 
number  is  1-800-526-3030  (ext.  941 ).  In  New  Jersey,  call 
1-800-742-2900  (ext.  941). 


Merrill  Lynch  Commodities  Inc. 

A  breed  apart. 

1982  Merrill  Lynch  Commodities  Inc 

When  a  company 


life  insurance 
that  puts 
a  premium 

on  innovation 
and  flexibility. . . 

It  must  be  USLIFE. 

These  days,  a  life  insurance 
>mpany  can't  afford  to  rest  on  its 

It  has  to  keep  its  competitive 
Ige.  Keep  coming  up  with  new 
leas.  Innovate. 

No  wonder  then  that  in  the 
ist  two  years  alone,  USLIFE  has  in- 
oduced  over  26  new  products  and 
-oduct  improvements.  Innovations 
med  at  giving  our  customers  even 
tore  for  their  premium  dollars. 

Take  our  newest  product  inno- 
ition,  the  INNOFLEX  series*.  These 
iterest-sensitive  policies  are  special- 
designed  to  reflect  the  economic 
alities  of  today — and  tomorrow, 
qually  important,  INNOFLEX  offers 
>u  built-in  flexibility.  More  flexibil- 
y  than  ever  before  possible. 

But  our  innovations  don't  end 
tere.  Because  USLIFE  companies 

continue  to  offer  an  extraordinarily 
wide  range  of  other  life  policies,  in- 
cluding the  traditional  policies  that 
have  passed  the  test  of  time. 

In  fact,  combine  the  appeal  of 
our  product  line  with  the  efforts  of 
our  producers  and  you  can  quickly 
see  why  the  USLIFE  family  of  com- 
panies ranks  third  in  individual  life 
sales  among  all  stock  life  insurance 
companies,  according  to  current 
industry  statistics. 

See  why  a  USLIFE  company 
should  become  your  life  insurance 

For  more  information,  contact 
the  USLIFE  company  nearest  you,  or 
write  Dept.  M,  USLIFE  Corporation, 
125  Maiden  Lane,  New  York,  NY 
10038.  Or  call  212-709-6226. 

We'll  show  you  why  a  USLIFE 
policy  is  always  a  better  idea. 

*Not  yet  available  in  all  states. 


life  is  a  family  affair 

Our  family  of  life  insurance  companies. 

The  United  States  Life  Insurance  Company,  New  York,  NY  212-709-6360 
USLIFE  Life  Insurance  Company  of  California,  Pasadena,  CA  213-795-0401 
Great  National  Life,  Dallas,  TX  214-357-1861  •  Old  Line  Life,  Milwaukee,  Wl  414-271-2820 
All  American  Life,  Chicago,  IL  312-399-6500  •  Lincoln  Liberty  Life,  Des  Moines,  IA  515-225-2000 

in  building  up  its  service  force — 
called  field  engineering  in  the  com- 
puter business — and  $30  million  has 
gone  into  Data  General's  Sunnyvale, 
Calif,  semiconductor  operation  in  the 
last  several  years  to  help  turn  out  so- 
phisticated microprocessors  and  other 
high-density  chips  for  future  new 

New  executives  have  been  brought 
in,  many  from  IBM.  One  of  them, 
Robert  Miller,  who  was  head  of  tech- 
nology at  DG  beiore  his  recent  ap- 
pointment to  head  its  three  business 
divisions,  reports  that  he  "killed  more 
projects  at  Sunnyvale  than  during  my 
15  years  at  IBM.  Data  General  was 
spending  too  little  on  a  lot  of  things 
rather  than  a  lot  on  a  few  things." 
Another  former  IBMer,  David  Chap- 
man, as  head  of  manufacturing  is 

streamlining  production,  helping  DG 
to  bring  out  two  microprocessor- 
based  systems  selling  for  around 
$20,000.  Customers  for  such  products 
are  largely  original  equipment  manu- 
facturers (OEMs),  who  repackage 
them  into  specialized  systems  for  pro- 
cess controls  or  medical  instrumenta- 
tion. Such  OEMs  have  historically  ac- 
counted for  60%  to  65%  of  DG's 
sales.  Another  traditional  customer 
group,  small  businesses  with  less 
than  $25  million  in  sales,  will  also  be 
receiving  a  new  family  of  computers 
to  replace  DG's  five-year-old  small 
business  products. 

But  the  company's  new  pride  is  the 
office  automation  system — combin- 
ing functions  like  word  processing, 
electronic  mail  and  filing — that  it 
calls  CEO.  Customers  for  such  sys- 

tems are  large  corporations  that  in  the 
past  have  more  often  been  served  by 
IBM  or  Wang  Laboratories.  Success 
with  this  customer  group  is  impor- 
tant for  Data  General's  future  because 
demand  for  such  office  automation 
gear  could  be  a  $75  billion  market  by 
1990.  In  the  fast-crowding  office-auto- 
mation field  DG  believes  it  can  offer 
more  functions  in  an  easier-to-use 
system  than  many  of  its  competitors. 
At  Westboro  headquarters,  at  least, 
DG  people  report  the  market's  re- 
sponse to  be  favorable. 

As  it  has  throughout  its  short  histo- 
ry, DG  is  once  again  coming  from 
behind.  It  played  its  most  noted  game 
of  catch-up  in  1978  when,  through  a 
heroic  effort,  it  produced  the  next  gen- 
eration of  minicomputers,  a  32-bit 
"supermini"  to  match  Digital  Equip- 

Breaking  away 

Data  General  got  its  start  in  1968 
after  Digital  Equipment  declined  to 
build  a  16-bit  computer  designed  by 
one  of  its  brightest  engineers,  Edson 
de  Castro.  De  Castro  thereupon 
gathered  associated  and  venture 
capital  and  started  DG.  He  built  the 
computer,  called  Nova,  and  its  in- 
stant success  forced  his  old  employ- 
er to  play  catchup.  As  the  charts 
show,  competition  between  the  two 
companies  was  fairly  close  for  sever- 
al years.  But  lately  DEC  has  been 
pulling  away.  De  Castro,  undaunt- 
ed, vows  his  revitalized  company 
will  again  make  things  hot  for  DEC. 

Sales  (Sbillions) 















































76  1 

8  '1 



Cash  flOW  (Smillions) 






76         78         '80  '82 

Net  profit  margins  tpe 

^■■hhi  mm 




74         76         78         '80  '82 

Long-term  debt  (Smillions) 






















































74  76  78         '80  '82 


Capital  spending  t$miiiions) 


■  J 



76         7  8  80  '82 


FORBES,  OCTOBER  11,  1982 

ment's  product  that  was  sweeping  the 
market.  But  such  heroic  efforts,  while 
thrilling  (DCs  was  documented  in 
the  bestselling  Soul  of  a  New  Machine), 
can  drain  an  organization's  resources 
and  retard  development  of  other  prod- 
ucts. In  the  1980s  effort  to  match  larg- 
er rivals,  DG  has  turned  to  a  more 
professional  organizational  style. 

De  Castro — a  gifted  engineer  who 
took  his  degree  from  the  respected 
Lowell  Technology  Institute,  but  who 
harbors  some  wounded  pride  that 
Harvard  Business  School  did  not  in- 
vite him  back  for  the  second  year  of 
its  M.B.A.  program  ("Maybe  that's 
why  I  haven't  been  promoted  in  the 
last  13  years")  —  says,  "In  retrospect, 
[  obviously  would  like  to  have  done 
many  of  these  things  earlier." 

What  held  him  back?  Partly  the 
psychic  comforts  of  small  company 
life.  "All  of  us  were  terrific  as  long  as 
the  company  was  small  enough  so 
everyone  ate  lunch  with  everyone 
dse,"  he  says.  But  de  Castro  now  rec- 
agnizes  the  snare  in  such  informal 
decision-making:  "We  began  to  devel- 
ap  rules  of  thumb,  which  unfortu- 
nately became  averages.  The  average 
is  an  arithmetic  mean,  but  it  is  not 
reality."  What  de  Castro  is  saying  is 
that  averages  make  decisions  easy  but 
not  necessarily  correct.  It  is  easier,  for 
example,  to  decree  that  R&D  gets 
10%  increases  across-the-board  than 
to  allocate  the  money  to  the  product 
^roup  that  really  needs  it  and  deprive 
another  group. 

DG — $800  million  sales  this  year — 
particularly  could  not  afford  such 
carelessness  because  it  has  fewer  re- 
sources to  work  with  than  its  far  larg- 
er minicomputer  competitors — Digi- 
tal Equipment,  $3.9  billion  revenues, 
and  Hewlett-Packard,  $3.6  billion. 

Can  Data  General  regain  star  sta- 
tus, be  a  standout  company  in  the 
different  data  processing  markets  of 
the  Eighties?  The  beginnings  of  an 
answer  will  come  next  year  when  the 
market's  reception  of  its  new  prod- 
ucts will  be  known.  To  be  sure,  DG 
sets  a  good  example.  At  a  time  when 
American  managers  are  being  criti- 
:ized  for  everything  from  shortsight- 
edness to  money  grubbing,  there  is 
reason  to  applaud  DG's  founders  for 
the  risks  they  are  taking  to  transform 
their  company. 

Why  didn't  those  same  founders 
plan  and  organize  their  company  ear- 
lier for  size  and  greatness?  Short-term 
thinking?  Not  really.  Mainly  they 
feared  that  structure  would  smother 
initiative  and  tame  aggressiveness.  A 
youthful  mistake  in  hindsight  but, 
thanks  to  their  current  determina- 
tion, probably  not  a  fatal  one.  ■ 

FORBES,  OCTOBER  11,  19K2 

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The  fact  that  the  used-plane  market  is  glut- 
ted is  the  least  of  Pan  Ams  problems  in 
selling  off  a  dozen  of  its  wide-body  jets.. 

Wishing  upon 
a  Tristar 

By  Howard  Banks 

In  a  desperate  bid  to  ease  its  fi- 
nancial squeeze,  Pan  American 
World  Airways'  chairman,  Ed 
Acker,  is  proposing  to  dispose  of  a 
dozen  almost-new  long-range  Lock- 
heed 1011s.  These  Tristars,  the 
newest  and  most  efficient  long-haul 
aircraft  in  Pan  Am's  fleet,  are  on  the 
block  because  they  are  just  about  the 
only  readily  disposable  assets  left  in 
the  airline's  inventory.  In  the  last  18 
months  it  has  sold  off  its  famous 
building  on  New  York's  Park  Avenue 
and  its  profitable  Intercontinental 
Hotels  chain.  The  rest  of  the  airline's 
fleet  is  either  old  or  uneconomic  ( 747s 
and  early  727s),  unwanted  by  any  buy- 
er (long-range  DC- 10s)  or  needed  by 
Pan  Am  to  stay  in  business. 

Getting  rid  of  these  Tristars  is  easi- 
er said  than  done.  Acker's  Tristars 
will  move  only  if  the  horrendously 
complicated  finance  package  that 
goes  with  them  (the  basic  documents 
are  520  pages  long)  can  be  assumed  by 
a  buyer.  The  key  factor  in  the  package 
is  an  export-finance  guarantee  from 
the  British  government,  granted  in 
1979  to  boost  state-owned  Rolls- 
Royce,  which  makes  the  planes'  en- 
gines. Backed  by  this  guarantee,  $520 
million  was  raised  at  an  average  inter- 
est rate  of  around  9Vi%  over  15  years. 
Pan  Am  put  up  not  a  penny  in  cash. 

Such  government-backed  and  guar- 
anteed (and  usually  subsidized)  fi- 
nance packages  have  become  crucial 
to  selling  aircraft  to  the  world's  air- 
lines that  otherwise  cannot  really  af- 
ford to  buy.  The  Pan  Am-Rolls-Royce 

deal  was  no  exception.  In  1978  Rolls- 
Royce  was  "persuaded"  to  finance  the 
whole  package.  This  included  the 
down  payment,  which  Rolls  (i.e.,  indi- 
rectly the  British  taxpayer)  would  be 
stuck  for  in  the  event  of  a  default  by 
Pan  Am.  The  rest  of  the  $520  million 
is  unconditionally  guaranteed  by  the 
British  government,  including  money 
for  the  American-made  Lockheed  air- 
frames— a  move  that  caused  a  major 
row  between  the  two  countries  at 
the  time. 

The  $520  million  was  sold  to  banks, 
insurance  companies  and  pension 
plans  as  an  equipment  trust  and  in 
two  equal  lumps.  One  was  organized 
by  Citibank  and  involves  British 
banks  Hill  Samuel  (which  has  a  close 
connection  with  Rolls'  then-chair- 
man), National  Westminster  and  Bar- 
clays, together  with  a  number  of  Japa- 
nese banks.  The  other  half  of  the 
money  was  raised  from  a  group  of  six 
leading  American  insurance  compa- 
nies, with  GE's  pension  trust  taking  a 
small  stake. 

Consortium  banking  is  always 
awkward.  It  becomes  almost  impossi- 
ble when  there  is  trouble.  The  greater 
the  number  of  countries  involved,  the 
greater  the  potential  for  disagree- 
ment. Each  country  has  its  priorities 
and  different  methods  of  dealing  with 

Further  complicating  matters  is  the 
question  of  cross-directorships  among 
the  bankers  and  companies  in  their 
own  countries  that  may  be  rivals  of 
the  troubled  organization  doing  the 
borrowing.  Add  to  that  the  fact  that, 
today,  the  airlines  are  weak  borrowers 


^  **  

•  •  * 


Pan  Atn's  Lockheed  1011-500  long-range  Tristar, 

For  sale:  barely  used,  good  condition,  cheaply  financed. 


FORBES,  OCTOBER  11,  1982 


It  opens  a  whole  new  universe  of  opportunities  for  your  company. 

Electronic  banking-defined  in  simple, 
everyday  terms. 

Forget  the  fancy  terminology  and  terminals. 

At  Citibank,  electronic  banking  is  simply  an 
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Here,  from  Citibank,  the  financial  institution  with  over  a  half-billion  dollars 
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Investigate  financial  transactions  as    local  Citibanker  or  write  on  your 

'  fa#fe$dk  as  ^.business  days 

ment  a 

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jC  1982  Citibank.  N 
The  Citi  ot  Tomorrow 

corporate  letterhead  to:  Citibank, 
Electronic  Banking,  399  Park  Avenue, 
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ic  Banking  are  service  marks  qfCirjhank.  N  .  A 



facing  strong  lenders  who,  thanks  to 
those  government  guarantees,  have 
nothing  to  lose,  and  you  begin  to  get  a 
feel  for  what  Acker  is  up  against  in 
the  seemingly  simple  task  of  dispos- 
ing of  some  aircraft.  To  make  the  deal, 
Acker  will  need  literally  dozens  of 
signatures.  Any  participating  lender 
could  refuse  to  go  along  and  thus  cre- 
ate difficulties.  The  possibilities  for 
bickering  are  endless. 

A  clear  lesson  as  to  how  difficult  his 
task  is  emerges  from  the  unsuccessful 
efforts  made  this  time  last  year  to 
rewrite  the  two  government-backed 
export-finance  packages  then  held  by 
Sir  Freddie  Laker  of  Skytrain  fame  (see 
box).  In  the  case  of  Pan  Am  and  the 
Tristars,  the  circumstances  are  some- 
what different — Laker  was  already 
technically  broke — and  there  are  dif- 
ferent pressures  on  the  lenders.  But 
the  scope  for  similar  disagreement  is 

The  lenders,  for  one  thing,  have  lit- 
tle incentive  to  agree  to  any  rearrange- 
ment that  would  increase  their  risk. 
In  the  event  that  Pan  Am  should  de- 
fault, they  are  totally  protected  from 
loss  by  the  British.  In  that  event,  too, 
they  would  be  rid  of  loans  that  were 
made  at  well  below  today's  market 
rate.  The  only  possible  attraction  to 
the  lenders  for  approving  a  transfer  of 
the  aircraft,  then,  is  if  any  new  lessee 
(or  two)  taking  over  the  equipment 
trust  would  have  much  better  credit- 
worthiness than  Pan  Am.  One  re- 
motely possible  outcome,  one  that 
would  please  the  lenders  greatly,  is 
that  the  People's  Republic  of  China 
might  take  over  all  12  Tristars.  Much 
more  likely,  alas,  is  that  several  small 
airlines — from  Third  World  countries 
already  stuffed  with  foreign-financed 
debt — will  each  bid  for  two  or  three 

Pan  Am  would  get  no  fresh  cash 
from  any  rearrangement.  It  would, 
however,  reduce  the  airline's  debt 
burden  by  $49.3  million  a  year.  Acker 
claims  this  would  be  additional  sav- 
ings, but  that  assumes  the  change  in 
planes  would  not  cause  loss  of  busi- 
ness or  diminished  efficiency. 

Pan  Am  needs  every  bit  of  relief  it 
can  manage.  In  the  first  half  of  1982, 
Pan  Am's  airline  operation  lost  $147 
million  (down  a  bit  from  a  $171  mil- 
lion loss  in  the  same  period  last  year). 
It  had  hoped  to  make  a  good  profit  in 
the  third  quarter  just  ended,  but  traf- 
fic did  not  pick  up  so  much  as  had 
been  hoped,  especially  in  July.  Pan 
Am  made  an  operating  profit,  but  only 
just.  By  the  end  of  June  its  working 
capital,  Acker  admitted,  was  down  to 
just  $90  million,  while  the  airline's 
debt  stood  at  67%  of  total  capital. 

Since  a  revolt  last  year,  led  by  Chase 
Manhattan,  no  bank  has  been  willing 
to  lend  Pan  Am  additional  short-term 

A  measure  of  how  concerned  Acker 
is  to  get  rid  of  his  Tristars  is  that  he  is 
reported  to  be  considering  passing  on 
part  of  the  interest  saving  to  the  new 
lessee(s).  In  effect  he  would  be  further 
subsidizing  the  already  subsidized  fi- 
nance package. 

There  is  still  more  to  trip  over.  The 
secondhand  airliner  market  is,  for  a 
start,  glutted  with  wide-body  aircraft. 
Estimates  vary,  but  there  are  said  to 
be  55  Boeing  747s,  around  35  long- 
range  DC- 10s,  and  even  17  of  the  new 
Airbus  Industrie's  A300  on  the  mar- 
ket. And,  to  add  spice,  the  last  six  of 
the  Tristars  delivered  to  Pan  Am  are 
covered  by  safe-harbor  leasing,  which 
means  that  they  cannot  easily  be  dis- 
posed of  outside  the  U.S. 

Without  some  lucky  strike  on  the 
Tristars,  this  fall  could  prove  to  be  a 
bloody  one  for  Pan  Am.  Not  only  is 
traffic  not  picking  up  for  the  airlines 
in  general,  but  also  there  are  clear 
signs  that  yet  another  fare  war  is  be- 

Sir  Freddie  Laker  knows  better 
than  most  men  the  problems 
Pan  Am's  Ed  Acker  faces.  Months 
of  work  went  into  the  seemingly 
simpler  task  of  rescheduling  Laker 
Airways'  two  government-backed 
finance  packages.  One  was  from 
the  U.S.  Export-Import  Bank,  for 
five  DCT0-30s,  and  the  other  from 
the  Europeans  (with  a  special  Brit- 
ish interest-rate  subsidy)  for  three 

For  many  reasons  the  effort 
failed.  The  American  equipment 
makers  in  the  DC- 10  loan,  Mc- 
Donnell Douglas  and  General  Elec- 
tric, as  well  as  Ex-Im,  could  not 
agree  to  convert  part  of  their  out- 
standing debt  into  equity  in  the 
severely  undercapitalized  Laker 
Airways.  Nor,  in  the  end,  would 
they  consent  to  lend  Laker  new 
money.  And  in  the  six-nation  con- 
sortium that  made  the  Airbus  loan, 
two  West  German  banks  and  the 
Austrian  bank  wanted  Laker  de- 
clared broke  and  the  Airbuses  sold 
promptly,  believing  that  way 
would  give  them  back  more  of 
their  money. 

The  killer  blow,  on  top  of  many, 
was  delivered  when  Ed  Acker 
slashed  Pan  Am's  fares  in  Novem- 
ber 1981,  and  bargain-hunting  pas- 
sengers deserted  Skytrain.  Laker 

ginning.  Pan  Am  is  already  leading  a 
rush  to  reintroduce  low-price 
charters,  particularly  on  the  North 

The  combined  effect  of  these  low 
fares  will  be  to  devastate  profitability. 
Any  alternative  refinancing  package 
to  the  Tristars  will  inevitably  bring 
with  it  harsh  conditions  leading  to 
even  greater  cutbacks  in  staff  and 
routes  than  those  already  planned  to 
take  effect  this  month. 

As  if  this  were  not  enough,  passing 
on  the  finance  package  that  goes  with 
the  Tristars  would  surely  put  Lock- 
heed in  a  curious  position.  Lockheed 
has  decided  to  end  production  of  the 
planes  because  it  was  losing  money 
on  them.  The  last  five  coming  down 
the  line  are  still  unsold  "white  tails" 
(because  no  airline's  logo  is  painted  on 
their  tails).  Since  it  was  the  original 
beneficiary  of  Britain's  largess,  Lock- 
heed can  hardly  object  to  Acker's  ef- 
forts to  unload  Pan  Am's  12  Tristars. 
But  the  availability  of  British-subsi- 
dized finance  on  Pan  Am's  Tristars  is 
not  going  to  make  Lockheed's  sale  of 
the  last  five  new  Tristars  any  easier.  ■ 

Sir  Freddie  Iziker 

Back,  again  soon? 

Airways  folded  in  February  1982. 

Now  Sir  Freddie  Laker,  the 
cheeky  chappie  of  British  aviation, 
is  close  to  bouncing  back.  Not  as 
an  airline  operator — no  one  would 
lend  him  the  money  for  that — but 
as  a  tour  operator.  And  guess 
which  major  airline  he  is  expected 
to  team  up  with  closely,  one  that  is 
rushing  back  into  charters?  Cor- 
rect: Pan  American.— H.B. 

Great  circle  route 

FORBES,  OCTOBER  11,  1982 



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facing  strong  lenders  who,  thanks  to 
those  government  guarantees,  have 
nothing  to  lose,  and  you  begin  to  get  a 
feel  for  what  Acker  is  up  against  in 
the  seemingly  simple  task  of  dispos- 
ing of  some  aircraft.  To  make  the  deal, 
Acker  will  need  literally  dozens  of 
signatures.  Any  participating  lender 
could  refuse  to  go  along  and  thus  cre- 
ate difficulties.  The  possibilities  for 
bickering  are  endless. 

A  clear  lesson  as  to  how  difficult  his 
task  is  emerges  from  the  unsuccessful 
efforts  made  this  time  last  year  to 
rewrite  the  two  government-backed 
export-finance  packages  then  held  by 
Sir  Freddie  Laker  of  Skytrain  fame  (see 
box).  In  the  case  of  Pan  Am  and  the 
Tristars,  the  circumstances  are  some- 
what different — Laker  was  already 
technically  broke — and  there  are  dif- 
ferent pressures  on  the  lenders.  But 
the  scope  for  similar  disagreement  is 

The  lenders,  for  one  thing,  have  lit- 
tle incentive  to  agree  to  any  rearrange- 
ment that  would  increase  their  risk. 
In  the  event  that  Pan  Am  should  de- 
fault, they  are  totally  protected  from 
loss  by  the  British.  In  that  event,  too, 
they  would  be  rid  of  loans  that  were 
made  at  well  below  today's  market 
rate.  The  only  possible  attraction  to 
the  lenders  for  approving  a  transfer  of 
the  aircraft,  then,  is  if  any  new  lessee 
(or  two)  taking  over  the  equipment 
trust  would  have  much  better  credit- 
worthiness than  Pan  Am.  One  re- 
motely possible  outcome,  one  that 
would  please  the  lenders  greatly,  is 
that  the  People's  Republic  of  China 
might  take  over  all  12  Tristars.  Much 
more  likely,  alas,  is  that  several  small 
airlines — from  Third  World  countries 
already  stuffed  with  foreign-financed 
debt — will  each  bid  for  two  or  three 

Pan  Am  would  get  no  fresh  cash 
from  any  rearrangement.  It  would, 
however,  reduce  the  airline's  debt 
burden  by  $49.3  million  a  year.  Acker 
claims  this  would  be  additional  sav- 
ings, but  that  assumes  the  change  in 
planes  would  not  cause  loss  of  busi- 
ness or  diminished  efficiency. 

Pan  Am  needs  every  bit  of  relief  it 
can  manage.  In  the  first  half  of  1982, 
Pan  Am's  airline  operation  lost  $147 
million  (down  a  bit  from  a  $171  mil- 
lion loss  in  the  same  period  last  year). 
It  had  hoped  to  make  a  good  profit  in 
the  third  quarter  just  ended,  but  traf- 
fic did  not  pick  up  so  much  as  had 
been  hoped,  especially  in  July.  Pan 
Am  made  an  operating  profit,  but  only 
just.  By  the  end  of  June  its  working 
capital,  Acker  admitted,  was  down  to 
just  $90  million,  while  the  airline's 
debt  stood  at  67%  of  total  capital. 

Since  a  revolt  last  year,  led  by  Chase 
Manhattan,  no  bank  has  been  willing 
to  lend  Pan  Am  additional  short-term 

A  measure  of  how  concerned  Acker 
is  to  get  rid  of  his  Tristars  is  that  he  is 
reported  to  be  considering  passing  on 
part  of  the  interest  saving  to  the  new 
lessee(s).  In  effect  he  would  be  further 
subsidizing  the  already  subsidized  fi- 
nance package. 

There  is  still  more  to  trip  over.  The 
secondhand  airliner  market  is,  for  a 
start,  glutted  with  wide-body  aircraft. 
Estimates  vary,  but  there  are  said  to 
be  55  Boeing  747s,  around  35  long- 
range  DC- 10s,  and  even  17  of  the  new 
Airbus  Industrie's  A300  on  the  mar- 
ket. And,  to  add  spice,  the  last  six  of 
the  Tristars  delivered  to  Pan  Am  are 
covered  by  safe-harbor  leasing,  which 
means  that  they  cannot  easily  be  dis- 
posed of  outside  the  U.S. 

Without  some  lucky  strike  on  the 
Tristars,  this  fall  could  prove  to  be  a 
bloody  one  for  Pan  Am.  Not  only  is 
traffic  not  picking  up  for  the  airlines 
in  general,  but  also  there  are  clear 
signs  that  yet  another  fare  war  is  be- 

ginning. Pan  Am  is  already  leading  a 
rush  to  reintroduce  low-price 
charters,  particularly  on  the  North 

The  combined  effect  of  these  low 
fares  will  be  to  devastate  profitability. 
Any  alternative  refinancing  package 
to  the  Tristars  will  inevitably  bring 
with  it  harsh  conditions  leading  to 
even  greater  cutbacks  in  staff  and 
routes  than  those  already  planned  to 
take  effect  this  month. 

As  if  this  were  not  enough,  passing 
on  the  finance  package  that  goes  with 
the  Tristars  would  surely  put  Lock- 
heed in  a  curious  position.  Lockheed 
has  decided  to  end  production  of  the 
planes  because  it  was  losing  money 
on  them.  The  last  five  coming  down 
the  line  are  still  unsold  "white  tails" 
(because  no  airline's  logo  is  painted  on 
their  tails).  Since  it  was  the  original 
beneficiary  of  Britain's  largess,  Lock- 
heed can  hardly  object  to  Acker's  ef- 
forts to  unload  Pan  Am's  12  Tristars. 
But  the  availability  of  British-subsi- 
dized finance  on  Pan  Am's  Tristars  is 
not  going  to  make  Lockheed's  sale  of 
the  last  five  new  Tristars  any  easier.  ■ 

Great  circle  route 

Sir  Freddie  Laker  knows  better 
than  most  men  the  problems 
Pan  Am's  Ed  Acker  faces.  Months 
of  work  went  into  the  seemingly 
simpler  task  of  rescheduling  Laker 
Airways'  two  government-backed 
finance  packages.  One  was  from 
the  U.S.  Export-Import  Bank,  for 
five  DC-10-30s,  and  the  other  from 
the  Europeans  (with  a  special  Brit- 
ish interest-rate  subsidy)  for  three 

For  many  reasons  the  effort 
failed.  The  American  equipment 
makers  in  the  DC- 10  loan,  Mc- 
Donnell Douglas  and  General  Elec- 
tric, as  well  as  Ex-Im,  could  not 
agree  to  convert  part  of  their  out- 
standing debt  into  equity  in  the 
severely  undercapitalized  Laker 
Airways.  Nor,  in  the  end,  would 
they  consent  to  lend  Laker  new 
money.  And  in  the  six-nation  con- 
sortium that  made  the  Airbus  loan, 
two  West  German  banks  and  the 
Austrian  bank  wanted  Laker  de- 
clared broke  and  the  Airbuses  sold 
promptly,  believing  that  way 
would  give  them  back  more  of 
their  money. 

The  killer  blow,  on  top  of  many, 
was  delivered  when  Ed  Acker 
slashed  Pan  Am's  fares  in  Novem- 
ber 1981,  and  bargain-hunting  pas- 
sengers deserted  Skytrain.  Laker 

?  A 

Sir  Freddie  Laker- 
Back  again  soon? 

Airways  folded  in  February  1982. 

Now  Sir  Freddie  Laker,  the 
cheeky  chappie  of  British  aviation, 
is  close  to  bouncing  back.  Not  as 
an  airline  operator — no  one  would 
lend  him  the  money  for  that — but 
as  a  tour  operator.  And  guess 
which  major  airline  he  is  expected 
to  team  up  with  closely,  one  that  is 
rushing  back  into  charters?  Cor- 
rect: Pan  American. — H.B. 

FORBES,  OCTOBER  11,  1982 


Why  does  Wall  Street  give  Fleetwood  a  PIE 
ratio  of  22?  The  answer  to  that  question 
contains  a  valuable  lesson. 

Keeping  its 
powder  dry 

pany  is  to  outside  shocks. 

The  last  time  the  good  times  rolled 
for  Fleetwood  was  fiscal  1979,  when 
sales  surged  to  a  record  $800  million. 
The  next  year  they  fell  41%,  to  $472 
million,  and  Fleetwood  lost  $8.5  mil- 
lion when  the  economy  was  socked 
by  rising  gasoline  prices  and  high  in- 
terest rates.  Before  that,  there  was  the 
boom  of  1972,  the  bust  of  the  oil  em- 
bargo in  1973. 

Now  the  pendulum  is  swinging 
again.  Fleetwood's  fiscal  1982  RV 
sales,  which  provided  about  half  of 
the  company's  $581  million  in  rev- 

By  Ellen  Paris 

With  gas  prices  and  interest 
rates  both  headed  south, 
Wall  Street  is  high  on 
Fleetwood  Enterprises,  Inc.,  now  the 
nation's  largest  maker  of  recreational 
vehicles  (RVs)  and  manufactured 
housing.  It  sports  a  multiple  of  22 
times  earnings  for  the  fiscal  year  end- 
ed April,  and  10  times  next  year's 
expected  $1.20  per  share.  But 
Fleetwood  Chairman  John  Crean  isn't 
letting  this  adulation  turn  his  head. 
He  knows  how  vulnerable  his  com- 

Fleetwood's  founder-chairman  John  Crean 
Even  a  microwave  oven. 

enues,  increased  58%.  Net  income 
quadrupled  from  the  year  before,  to 
$9.1  million.  In  the  current  year's  first 
quarter,  motor-home  sales  jumped 
100%,  and  net  income  for  the  quarter 
alone  was  $5.8  million. 

A  lot  of  those  RV  sales  were  in 
Fleetwood's  $35,000-to-$45,000  top- 
of-the-line  models  that  feature  "mini- 
master"  bedroom  suites,  full-size 
showers  and  microwave  ovens.  Buy- 
ers who  shell  out  that  kind  of  money 
are  not  particularly  worried  about  the 
price  of  gas,  only  its  availability.  "If 
you  can  afford  a  $2  cigar,  who  cares 
about  the  price  of  matches?"  cracks 
Boyd  Plowman,  Fleetwood's  senior 
vice  president  of  finance.  Fleetwood 
has  a  32%  share  of  this  end  of  the 
market,  rivaling  Winnebago  for  the 
top  spot.  A  step  down  the  line,  first- 
time  RV  buyers  are  being  drawn  in  by 
a  new  generation  of  vehicles  that  get 
50%  better  mileage  than  models  of  a 
decade  ago,  thanks  to  better  aerody- 
namics, styling  and  lighter  weight. 

Much  of  the  cheering  on  Wall 
Street,  though,  is  over  Fleetwood's  po- 
tential in  manufactured  housing, 
where  it  is  now  the  country's  largest 
producer.  Remember  "modular  hous- 
ing," the  big  buzzword  of  the  early 
Seventies,  but  a  disaster  in  the  late 
Seventies?  Now  it  seems  about  ready 
to  amount  to  something.  Until  a  few 
years  ago  most  states  taxed  manufac- 
tured housing  as  if  it  were  an  auto- 
mobile. The  check  went  to  the  state 
motor  vehicle  department,  not  the 
city,  so  tax-hungry  cities  discouraged 
manufactured  housing  developments. 
Now  about  two-thirds  of  the  states 
tax  it  properly  as  real  estate;  and  lend- 
ers will  make  long-term  loans  at  low- 
er rates,  something  they  wouldn't  do 

But  Fleetwood  isn't  getting  carried 
away.  It  still  has  no  long-term  debt, 
and  is  "pretty  realistic,"  as  Crean  deli- 
cately puts  it.  Crean  is  expanding,  but 
very  cautiously.  That  means  fewer, 
but  larger  facilities,  built-in  modules 
that  can  be  shut  down  bit  by  bit  when 
demand  shrinks  again.  All  sales  to  its 
1,400  RV  dealers  are  for  cash  on  the 
barrel  head — Fleetwood  won't  bear  a 
dealer's  inventory  risk. 

The  landscape  is  littered  with  the 
bones  of  companies  that  were  tempt- 
ed by  alluring  growth  prospects  to  lev- 
erage themselves  to  overexpand  in 
RVs  and  manufactured  housing.  Why 
was  Fleetwood  such  a  glittering  ex- 
ception? Because  it  always  put  pru- 
dence and  financial  soundness  ahead 
of  mindless  expansion.  This  is  a  sim- 
ple and  obvious  lesson  for  all  busi- 
nessmen. A  lesson  often  demonstrat- 
ed but  still  widely  ignored.  ■ 


FORBES,  OCTOBER  11,  1982 

Robert  Brooks  is  the  Wall  Street  insider 
personified.  He's  also  not  having  a  good 
year  and  feeling  strangely  confused. 

By  Jayne  A.  Pearl 

Smart  money? 

Robert  Brooks,  a  new  breed  of  trader 

"If  you're  an  entrepreneur,  you  have  to  strike  while  the  iron  is  hot. 

Seven  hours  a  day  Robert 
Brooks  roams  the  floor  of  the 
New  York  Stock  Exchange, 
buying  and  selling  stocks  for  his  per- 
sonal account.  Fifty  years  ago,  Brooks 
would  have  been  called  a  floor  trader. 
Back  then,  infamous  Wall  Streeters 
like  Jesse  Livermore  and  Arthur  Cut- 
ten  were  allegedly  making  great  for- 
tunes at  the  expense  of  individual  in- 
vestors. Today,  however,  the  38-year- 
old  Brooks  is  officially  designated  a 
registered  competitive  market  maker 
(RCMM).  Instead  of  profiting  grandly 
from  "inside  information,"  he  scram- 
bles to  squeeze  modest  gains  from 
hundreds  of  small  transactions.  He's 
among  the  first  of  a  new  breed. 

Blue  lights  suddenly  start  flashing 
atop  booths  across  the  cavernous  ex- 
change floor.  Voices  rise  above  the 
clamor  as  several  traders  converge  in 
one  corner.  "It's  a  call-in,"  explains 
Brooks,  breaking  into  a  fast  stride.  He 
and  other  RCMMs  like  him  must  ral- 
ly to  help  an  exchange  market  maker, 
or  specialist,  who  faces  an  imbalance 
of  buy  or  sell  orders.  They  are  required 
to  buy  or  sell,  with  their  own  money, 
at  least  100  shares  of  the  stock, 
though  there  is  no  mandatory  holding 

If  that  sounds  like  a  losing  proposi- 
tion, it  often  is.  That's  why  only  10  of 
the  23  RCMMs  are  active  today — far 
fewer  than  the  number  of  floor  traders 
who  flourished  as  recently  as  1977, 
when  the  Securities  &.  Exchange 
Commission  imposed  the  current  reg- 
ulations. Still,  Brooks,  who  has  to  an- 
swer call-ins  on  most  days,  has  plenty 
of  time  to  practice  his  own  invest- 
ment strategy:  "Being  on  the  floor 
means  it  is  impossible  to  be  a  funda- 
mentalist," he  explains.  "You  must 
take  a  shorter-term  view  of  the  mar- 
ket. I  trade  day  to  day,  not  month  to 
month,  or  year  to  year." 

Once,  for  example,  Brooks  bought 
7,000  shares  of  Nortek  on  a  Friday 
afternoon.  The  stock  opened  Monday 
morning,  down  $1.50,  when  a  specu- 
lator had  to  unload  93,000  shares  to 
meet  a  margin  call.  "I  was  out  $10,500 
right  there,"  Brooks  says.  The  special- 
ist bought  more  than  60,000  of  the 
shares,  and  the  RCMMs  got  a  call-in. 
At  that  point,  Brooks  decided  to  buy 
all  33,000  shares,  rather  than  just  his 
mandatory  100.  "I  felt  deep  down  in- 
side I  would  make  money,"  he  ex- 
plains. Nortek  quickly  bounced  back, 
and  he  did.  "A  lot,"  boasts  Brooks. 

This  kind  of  on-the-spot  trading  de- 
mands some  knowledge  of  each  of  the 
1,530  stocks  listed  on  the  exchange. 
Brooks  tries  to  have  a  feel  for  which 


FORBES,  OCTOBER  11,  1982 

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'Sonne  Cadillacs  are  equiDped  with  engines  produced  by  other  GM  divisions,  subsidiaries  or  affiliated 
companies  worldwide  See  your  dealer  for  details  All  imports  shown  are  1982  models 
Level  of  standard  equipment  varies 

Bold  new  performance.  In  '83 

Cimarron  sports  a  snappy  new  2.0  liter 
electronically  fuel-injected  engine  with 
a  5-speed  manual  transmission.  (3- 
speed  automatic  is  available.)  Plus  an 
exclusively  tuned  Touring  Suspension, 
front-wheel  drive  and  more. 

Bold  new  look.  There's  a  strong  new 
grille  treatment  and  tungsten  halogen 
fog  lamps.  A  proud  new  hood 
medallion.  And  crisp,  new  aluminum 
alloy  wheels. 

Plus  Cadillac  touches... 

Like  body-contoured, 
leather-faced  front 

bucket  seats  with  lumbar  /k 
support.  /jM 

Air  conditioning.  Full  instrumentation 
including  tach.  All  standard.  And 
available  features  like  a  new 
electronically  tuned  AM/FM  stereo 
cassette  radio  with  5-band  graphic 

Extraordinary  value.  Compare 
Cimarron  '83  to  any  import  in  its  class. 
Feature  for  feature.  Sticker  for  sticker. 
Most  of  all,  compare  performance  with 
a  demonstration  drive.  See!a  Cadillac 
dealer  soon, 

fou've  got  travel  insurance  that  can  start  on  the 
way  to  the  airport.  Automatically. 

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u  charged  your  plane,  train  or  ship  tickets 
on  the  American  Express* Card.  So  you 
are  automatically  covered  with  $75,000 
in  Travel  Accident  Insurance.  And 
if  you  charged  tickets  on  the  Card  for 
your  spouse  and  dependent  children 
under  23,  they're  covered,  too.  Charge 
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the  American  Express  Card. 
Don't  leave  home  without  it? 


Icrwritten  by  Fireman  s  Fund  American  Life  Insurance  Company.  San  Rafael.  California. 

companies  are  trading  near  their  lows 
and  highs,  which  are  moving  up  or  are 
on  the  way  down  and  how  various 
industry  groups  are  performing.  He 
keeps  the  latest  copy  of  William 
O'Neil  &.  Co.'s  daily  price  graphs  in 
the  pocket  of  his  blue-and-white- 
striped  smock.  And  nary  a  weekend 
passes  that  Brooks  isn't  glued  to  the 
Trendline  report  of  stock  information 
that  arrives  on  his  doorstep  each  Sat- 
urday morning  at  7. 

The  objectives  are  simple.  Such 
traders  attempt  to  buy  stocks  they 
feel  are  "oversold"  or  cyclical  compa- 
nies that  are  at  the  bottom  of  their 
business  cycle.  Sometimes  this 
works,  sometimes  not.  Last  spring, 
for  example,  Brooks  loaded  up  on  an 
oil  and  gas  drilling  company. 
But  its  "early  movement" 
was  only  a  brief  gasp  before  a 
steeper  fall. 

Getting  out  wasn't  easy. 
The  week  before  the  mid-Au- 
gust rally,  Brooks  tried  to 
close  all  bis  positions  to  take 
a  worry-free  week's  vacation. 
"I  was  supposed  to  be  out  of 
the  market  at  the  bell  Fri- 
day," he  says.  "But  when  I 
left  I  was  still  long  9,000 
shares  of  the  oil  and  gas  drill- 
ing company." 

Then,  when  the  market 
went  wild  the  next  week, 
Brooks  was  back  on  the  floor. 
"If  you're  an  entrepreneur, 
you  have  to  strike  while  the 
iron  is  hot.  No  one  can  do  it 
for  you,"  he  says.  "My  wife 
yelled,"  he  adds.  That  week 
Brooks  ended  up  trading  50% 
more  than  his  usual  20,000- 
share-a-day  load.  By  Thurs- 
day, Aug.  19,  his  previously 

at  age  12.  "I  worked  summers  on  pa- 
per routes,  amassed  a  fortune  of 
$1,000  and  opened  my  own  account," 
he  explains.  His  father,  72  and  still  on 
the  NYSE  floor  today  as  a  commission 
house  broker,  was  trustee.  "We  would 
sit  around  and  discuss  what  to  do  and 
then  he  would  buy  or  sell  as  custodi- 
an," Brooks  adds. 

Through  his  father's  contacts, 
Brooks  worked  summers  and  vaca- 
tions from  Georgetown  University  as 
a  clerk  on  the  exchange  floor.  Then  he 
became  a  "$2  broker"  trainee  at  Stern, 
Frank,  Meyer  &  Fox.  These  men  trade 
for  the  accounts  of  other  member 
firms,  and  in  the  days  before  negotiat- 
ed rates  they  earned  $2  in  commis- 
sions for  each  100-share  transaction. 

Do-it-yourself  floor  trading 

If  the  smell  of  big  money  and  the  lure  of  avoid- 
ing those  nasty  brokerage  fees  sound  tempting 
to  you,  become  a  registered  competitive  market 
maker  on  the  New  York  Stock  Exchange  or  a 
registered  equity  market  maker  on  the  American 
Stock  Exchange.  All  it  takes  is  a  seat  on  one  of 
these  exchanges.  Prices  range  from  $180,000  on 
the  American  to  $210,000  on  the  New  York  Stock 
Exchange.  After  passing  an  exam  on  all  the  appli- 
cable rules,  you  will  need  the  approval  of  both  the 
SEC  and  the  exchange.  Each  has  a  passel  of  re- 
quirements, which  boils  down  to  a  minimum 
liquid  capital  base  of  $100,000  on  the  NYSE. 

When  the  trading  begins,  of  course,  there  is  red 
tape.  RCMMs,  for  example,  must  file  daily  re- 
ports listing  every  transaction,  and  they  can't 
make  trades  that  might  have  an  effect  on  the 
market.  Also,  all  transactions  of  RCMMs  are  sub- 
ject to  stringent  capital  rules,  including  50%  mar- 
gin requirements.  Beyond  that,  you  are  on  your 
own. — J.A.P. 

anemic  oil  and  gas  drilling  company 
had  risen  by  $2.50  a  share — an  instant 
profit  of  as  much  as  $22,500. 

Of  course,  it  isn't  always  like  that. 
"Someone  like  me  could  get  wiped 
out  overnight,"  explains  Brooks, 
pointing  out  that  he  once  lost  25%  of 
his  capital  in  a  single  day.  He  con- 
tends that  the  long-term  returns  are 
good,  "but  not  extraordinary."  How 
much  does  he  make  to  support  his 
north  shore  Long  Island  home  and 
vacationless  family?  He  says  he  won't 
even  tell  his  wife.  "The  swings  are  too 
great  day  to  day  and  year  to  year." 
Knowledgeable  Wall  Streeters,  how- 
ever, says  RCMMs  typically  earn  well 
into  six  figures  annually. 

To  do  that,  of  course,  a  man  has  to 
be  a  virtual  encyclopedia  of  stock 
data — and  have  that  mystical  "feel" 
of  the  trader.  That's  where  Brooks  ex- 
cels; he  began  dabbling  in  the  market 

Commission  house  brokers,  on  the 
other  hand,  execute  orders  only  for 
the  customers  of  brokerage  houses. 
Today  there  are  some  840  brokers  of 
both  types,  but  none  may  trade  for  his 
own  account  as  the  RCMMs  do. 

In  1967  Stern,  Frank  contracted  a 
seat  to  Brooks — at  a  market  peak  price 
of  $515,000 — and  he  started  on  the 
floor  executing  orders  for  other  firms. 
By  1977  Brooks  had  saved  up  enough 
money  to  buy  a  seat  of  his  own,  which 
then  cost  a  mere  $90,000.  Then,  when 
the  SEC  created  RCMMs  on  an  ex- 
perimental basis  in  1977,  he  became 
one  of  the  first. 

Brooks'  workday  is  full  of  frantic, 
split-second  decisions  and  high  pres- 
sures. And  despite  the  noisy  milieu  of 
the  exchange,  his  style  of  trading  is 
strangely  lonely.  Brooks  maintains 
only  superficial  contact  with  his  col- 
leagues: "When  we  talk  among  our- 

selves, it's  just  whether  we're  long  or 
short  the  market,  never  our  positions. 
It's  a  question  of  dancing  on  the  other 
guy's  grave."  No  after- the-market 
drinks  with  the  boys  and  only  rare 
social  engagements  with  other  traders 
and  their  wives. 

During  the  workday,  Brooks 
doesn't  even  grab  a  midday  bite  with 
other  members,  but  that's  because  he 
never  eats  lunch — or  breakfast.  At 
least  not  since  he  began  trading. 
"There's  enough  stress  that  I 
wouldn't  enjoy  a  meal,"  he  explains. 
"I  always  have  positions  and  don't 
like  to  be  eating  when  things  can  hap- 
pen and  I  might  miss  a  move."  De- 
spite the  pressures,  Brooks  stays  com- 
posed as  others  scream  bids  peppered 
with  obscene  words  and  ges- 
tures across  the  floor.  His 
speech  is  slow  and  deliberate 
and  his  eyes  are  constantly 
riveted  on  the  stream  of 
prices  crossing  the  NYSE 
tape  above  the  heads  of  the 
traders.  Spotting  an  opportu- 
nity, he  briskly  moves  to  the 
appropriate  booth,  where  he 
calmly  strikes  a  bargain. 

Until  August,  this  year 
was  lean.  "For  the  first  time 
since  I  began  trading  I  was 
losing  money,"  Brooks  says. 
This  summer  he  was  "selec- 
tively buying  the  weakness 
in  the  market  and  waiting  on 
a  daily  or  weekly  basis  for  the 
market  to  rally."  But  Brooks 
never  holds  a  position  for 
longer  than  two  or  three 
months,  which  wasn't  long 
enough  earlier  this  year  to 
make  many  of  his  positions 
Then  came  the  rally.  "I've 

worked  myself  into  the  black," 
Brooks  says.  "Still,  it's  been  a  rough 
year  for  me  and  for  most  professional 

Why?  Brooks  isn't  sure.  "The  mar- 
kets have  taken  on  a  real  volatility, 
and  it  makes  some  of  the  older  ap- 
proaches, like  selling  if  the  stock  goes 
down  15%  or  buying  if  it  goes  up 
20%,  in  need  of  reexamination,"  he 
explains.  "I  think  the  best  thing  is  to 
be  pragmatic  and  not  be  locked  into 
any  one  strategy." 

That's  hardly  grounds  for  opti- 
mism. In  the  midst  of  what  may  be- 
come a  major  upturn,  Robert 
Brooks — who  is  as  close  to  the  stock 
market  as  you  can  get — seems 
strangely  worried.  This  may  mean 
that  the  basis  for  the  1982  rally  isn't 
sound.  Or  it  may  only  mean  that  on 
Wall  Street,  just  like  anywhere  else, 
one  can't  see  the  forest  for  the  trees.  ■ 

FORBES,  OCTOBER  11,  1982 



As  reinsurers,  we  assume  risks  originally  underwritten  by  other 
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Prudent  underwriting  and  reserving  practices — based  on  the 
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The  General  Re  Group  offers  reinsurance, 
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world.  Our  stock  is  traded  on  the  New  York  Stock 
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General  Re  Corporation,  Greenwich,  Connecticut 

Atlanta,  Chicago.  Columbus.  Dallas,  Des  Moines,  Hartford,  Houston,  Kansas  City.  Los  Angeles.  New  York.  Philadelphia.  San  Francisco,  Seattle.  Washington.  DC. 

Montreal,  Toronto,  and  London. 

©1982  GRC 

Bernie  Fein  sometimes  calls  himself  a  "gar- 
bage collector. "  But  what  he  has  in  United 
Industrial  Corp.  looks  more  like  gold. 

Look,  Ma, 
no  hands 

By  John  Dorfman 

"hands-off"  managers  like  Ber- 
nard Fein  at  United  Industrial 
Corp.  The  New  York-based  com- 
pany's sales  were  less  than  $100  mil- 
lion in  the  mid- 1 970s.  They  will  prob- 
ably top  $250  million  this  year.  Earn- 
ings have  been  growing  at  better  than 
20%  annually — to  $11  million  in 
1981 — and  UIC's  return  on  equity 
over  the  last  five  years  has  averaged 
close  to  20% . 

Some  say  Fein  has  achieved  all  this 
by  leaving  his  four  subsidiaries 
alone — especially  AAI  Corp.,  a  Balti- 
more-based defense  contractor,  which 
brings  in  57%  of  the  firm's  revenues. 
But  it's  not  that  simple.  "If  we  were 
doing  something  that  didn't  make 
sense,  he  would  find  a  nice,  subtle 
way  of  telling  us,"  says  AAI's  execu- 
tive vice  president,  Joseph  Montal- 
bano.  What  Fein  clearly  wouldn't  do 
is  dispatch  an  "adviser"  from  head- 
quarters. UIC  has  more  than  4,000 
employees,  but  only  10  work  at  its 
Manhattan  corporate  offices. 

To  appreciate  how  Bernie  Fein 
works,  you  need  to  know  his  back- 
ground. Fein,  74,  was  a  corporate  law- 
yer until  World  War  II,  when  he  was 
snatched  up  by  the  Air  Force.  It  want- 
ed him  because  of  his  early  ham  radio 
experience  (Fein's  license,  dated  1926, 
was  issued  by  Secretary  of  Commerce 
Herbert  Hoover).  After  the  war,  Fein 
worked  briefly  for  Bell  Labs  and  for  an 
electronics  firm,  then  embarked  on  a 
series  of  remarkable  corporate  salvage 
missions:  Winthrop  Products  in  1947, 
Ansley  Radio  in  1948  and  Lanston 
Monotype  in  1955.  All  were  on  their 
last  legs  when  Fein  arrived,  and  profit- 
able when  he  left. 

In  1958  Fein  bought  8%  of  United 
Industrial  "because  it  was  a  cheap 

stock  selling  for  less  than  $5."  He 
never  intended  to  take  a  management 
role,  but  was  pulled  in  to  straighten 
things  out  in  the  aftermath  of  a  disas- 
trous 1959  merger  with  Topp  Indus- 
tries, a  West  Coast  electronics  firm. 
"Topp  was  run  by  a  bunch  of  gung-ho 
smart  guys  who  took  over  UIC,"  Fein 
recalls.  "Within  six  months  of  the 
merger,  they  had  bought  a  cement 
aggregate  company  and  a  road-build- 
ing company,  a  small  rubber  company 
in  Ohio  and  U.S.  Semiconductor  in 

When  Fein  took  over,  UIC  had  $10 
million  of  debt  in  default,  a  negative 
net  worth  and  was  being  delisted  by 
the  New  York  Stock  Exchange. 

"Everyone  expected  me  to  file 
Chapter  11,"  he  explains.  Instead, 
Fein  repaid  his  loans  in  full,  partly  by 
selling  off  some  of  the  subsidiaries  the 
Topp  people  had  acquired.  To  this 

day,  UIC  is  almost  debt-free.  "A  lot  of 
people  tell  me  I  am  foolish  for  not 
borrowing,"  says  Fein — who  gives 
these  critics  no  more  heed  than  he 
does  those  who  would  like  him  to 
strip  his  company  of  its  "nonglamor- 
ous"  subsidiaries. 

Right  now  the  glamour  is  AAI,  for- 
merly Aircraft  Armaments,  Inc.  Its 
specialty  is  electronic  warfare  train- 
ing systems.  Firms  like  E-Systems 
and  Loral  build  the  hardware,  but  AAI 
dominates  the  market  for  training  and 
simulation  equipment  to  teach  people 
how  to  use  it.  The  company  also 
makes  pierside  training  systems  for 
the  Navy.  "That  way  you  don't  have 
to  take  a  huge  ship  out  to  sea  to  train 
its  crew,"  comments  Willard  Brown 
of  First  Albany  Corp. 

On  the  ordnance  side,  AAI  (as  a 
subcontractor  to  Ford)  produces  the 
turret  for  the  DIVAD  anti-aircraft 
gun.  It  makes  loaders  to  shove  Cruise 
missiles  into  B-52s,  quickly  and  pre- 
cisely. And  it  has  its  eye  on  two  other 
projects  that  might  make  UIC  a  bil- 
lion-dollar company  by  1987: 

•  Blue-sky  plan  number  one.  The 
Pentagon  decides  it  doesn't  want  to 
rely  solely  on  FMC  to  produce  its  new 
armored  personnel  carriers.  Bowen- 
McLaughlin-York,  a  subsidiary  of 
Harsco  Corp.,  becomes  a  second- 
source  contractor  on  the  $13  billion 
project  and  implements  a  standing 
agreement  to  subcontract  for  the  tur- 
rets from  AAI. 

•  Blue-sky  plan  number  two.  The 
Army,  the  Marines  or  a  foreign  power 
places  a  major  order  for  AAI's  RDF 
light  tank.  The  company  is  a  leader  in 
developing  this  controversial  piece  of 
hardware  (see  box),  and  if  it  becomes 

Bernard  Fein  at  the  controls  of  bis  bam  radio  equipment 

The  license  was  issued  in  1926  and  signed  by  Herbert  Hoover. 

FORBES,  OCTOBER  11,  1982 




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popular  AAI  will  be  a  major  supplier. 

Even  without  these  bonanzas,  UIC 
is  still  doing  nicely.  Sales  should  hit 
$600  million  by  1986,  with  AAI  pro- 
viding much  of  the  growth.  But  Fein's 
other  operations  are  by  no  means 
dogs.  Affiliated  Hospital  Products 
(70%  owned  by  UIC)  accounts  for 
roughly  one-quarter  of  current  sales. 
It  is  the  world's  largest  producer  of 
disposable  rubber  surgical  gloves. 

Then  there's  Detroit  Stoker,  the 
world's  largest  maker  of  coal  combus- 
tion-chamber feeders  for  industrial 
plants,  utilities  and  ships.  High  tech  it 
isn't,  but  Fein  isn't  troubled.  "Busi- 
nesses are  like  women's  styles,"  he 
says.  "When  they're  in  season,  Wall 
Street  starts  going  gaga  over  them." 

UIC's  smallest  division  is  Neo  Prod- 
ucts, a  tiny  plastics  firm  that  chips  in 
a  mere  3%  of  sales.  Why  bother?  "I 
bought  it  for  nothing,"  says  Fein. 
"How  can  you  lose?" 

That  kind  of  thinking  has  paid  off 
well  for  Fein  and  UIC's  shareholders. 
The  company's  stock,  which  has  been 
back  on  the  NYSE  since  1964,  now 
commands  12  times  earnings.  Its 
price  has  jumped  from  28  to  52  over 
the  past  year,  making  Fein's  current 
22%  ownership  position  worth  about 
$35  million.  Despite  his  age,  Fein  says 
he  isn't  worried  about  succession. 
And  why  should  he  be?  Brother  Ed, 
84,  is  ten  years  his  senior  and  still 
going  strong  as  UIC's  vice  president 
and  secretary.  ■ 

Fifteen  tons — and  here's  what  you  get 

W'hat  this  country  needs,  says 
Irwin  Barr,  is  a  good  15-ton 
tank.  Barr  is  president  of  AAI 
Corp.,  United  Industrial's  major 
subsidiary.  He  holds  well  over  100 
patents,  some  of  them  for  armor- 
piercing  antitank  ammunition, 
and  he  has  long  been  a  bug  on  the 
subject  of  light  tanks.  As  a  result, 
AAI  has  built  a  number  of  proto- 
types over  the  years,  but  so  far 
Barr's  ideas  have  generated  more 
controversy  than  orders. 

The  reason  is  weight.  The 
Army's  basic  tank  of  the  near  fu- 
ture, the  Ml,  rolls  off  General  Dy- 
namics' assembly  line  at  about  60 
tons — more  if  heavily  equipped. 
Most  Soviet  tanks  are  in  the  area  of 
45  tons.  Those  are  naturally  bulky, 
cumbersome  machines — and  in 
contrast,  AAI's  15-ton  RDF  model 
(for  Rapid  Deployment  Force — re- 
member?) can  be  carried  to  a  battle 
site  by  helicopter. 

Listen  to  Barr  make  his  case:  "If 
we  needed  to  project  force  rapidly 
someplace,  such  as  the  Mideast, 
we  could  quickly  transport  only 
140  or  so  Mis.  You  can  fit  two  Mis 
on  a  C5A  transport  plane,  and  the 
U.S.  has  70  or  so  C5As.  You  can't 
transport  Mis  in  a  C141,  our  main 
air  transporter,  of  which  we  have 
more  than  300.  But  if  we  were  us- 
ing RDF  light  tanks,  we  could  rap- 
idly transport  about  1,400 — 10 
times  as  many — 8  each  in  our 
C5As  and  2  each  in  our  C141s.  The 
RDF  tank  also  fits  into  a  C130." 

Add  to  that  the  fact  that  light 
tanks  go  for  a  base  price  of  about  $  1 
million  (vs.  around  $2.7  million  for 
a  conventional  tank),  and  the  case 

AAI  Corp.  's  RDF  light  tank 

begins  to  get  intriguing.  Light  tank 
proponents  argue  that  with  today's 
armor-piercing  shells  almost  no 
tank  is  able  to  withstand  a  direct 
hit.  So  what  counts  are  numbers, 
mobility,  rapid  automatic  fire  and 
a  low  silhouette. 

On  the  other  hand,  critics  claim 
that  light  tanks  are  vulnerable  to 
more  weapons  than  heavy  tanks. 
Some  shoulder-fired  rockets,  for 
example,  can  destroy  an  RDF  light 
tank — unlikely  with  an  Ml. 

Barr  hopes  the  Army  will  even- 
tually order  his  RDF  tank,  but  he 
has  a  better  chance  with  the  Ma- 
rines— or  foreign  governments.  A 
big  sale  to  Venezuela  was  appar- 
ently near,  before  the  war  over  the 
Falkland  Islands.  But  now,  politics 
are  such  that  Latin  American  offi- 
cials don't  want  to  be  seen  talking 
with  Yanqui  suppliers. — f.D. 

FORBES,  OCTOBER  11,  1982 


Aren't  they  in  retail? 
Or  is  it  wholesale? 

Our  Retail  Group  owns  and  operates  Liberty  House  department  stores. 
(In  Hawaii,  California  and  Nevada.)  Our  Distribution  Group  is  one  of  the 

nation's  leading  wholesalers  of  pharmaceuticals,  electrical  and 
mechanical  supplies.  Both  groups  are  successful,  and  should  be.  We've 
been  wholesalers  and  retailers  for  over  a  hundred  years. 
When  the  question  is  Amfac,  the  answer  is  yes. 


Forbes  500.  $2.1  billion  revenues. 
Diversified  operations  in  38  states. 

GMC  is 
a  division  of 

GMC  our  aim,  quite  simply, 
offer  trucks  that  know  how  to 
^ed  in  business— your  business, 
's  why,  from  one  end  of  our 
:o  the  other,  we  offer  trucks 
can  help  you  cut  your  oper- 
;  costs  and  help  make  your 
>m  line  look  better, 
st  consider  a  few  of  the  things 
were  done  to  make  our  trucks 
beautiful  to  your  bookkeeper, 
our  Dragfoiler.  We  developed 
i  made  it  available  on  our 
y-duty  GMCs.  It  can  help  keep 
distance  from  wasting  your 

w  for  1983  are  features  like  the 

aerodynamically  designed  hood, 
available  on  selected  Brigadier  mod- 
els, power  hydraulic  front  and  rear 
disc  brakes,  available  on  a  wide 
range  of  conventional  medium-duty 
models,  and  the  S-15  Club  Coupe 
and  new,  compact  S-15  Jimmy. 

Of  course,  there  are  lots  of  other 
ways  GMC  trucks  can  help  cut 
your  operating  costs.  The  point 
being,  that  whether  your  trucking 
needs  are  large  or  small,  our  whole 
line  is  built  with  your  bottom  line 
in  mind.  You  see,  at  GMC,  trucks 
are  what  we're  all  about.  See  your 
GMC  truck  dealer  about  buying  or 
leasing  one  today. 


Tiny  Logicon  is  growing  as  a  defense  con- 
tractor by  supplying  the  software  that 
makes  the  missiles  hit  the  mark. 

On  target 

By  Michael  Cieply 

above  Los  Angeles'  fog-shroud- 
ed San  Pedro  harbor,  looms 
Logicon  Inc.'s  labyrinthine  office 
complex.  Files  are  secured  with  long 
metal  bars,  and  certain  of  the  rooms 
are  ominously  bolted.  While  the  staff 
is  busy  "sanitizing"  an  area  for  visi- 
tors, John  Woodhull,  president 
of  the  $62  million  (revenues) 
company,  stares  suspiciously 
at  the  reporter's  cassette  re- 
corder on  his  desk.  "Okay, 
where  does  this  tape  go?"  he 
asks  sternly.  "Let's  just  talk 
about  that  for  a  minute." 

A  flair  for  cloak-and-dagger? 
More  like  routine  vigilance  for 
a  defense  electronics  firm  with 
90%  U.S.  government  book 
ings.  Logicon's  bread  and  butte: 
comes  from  products  as  peril- 
ous as  the  MX  inertial  guidance 
software  and  the  programs  that 
target  all  the  Minuteman  and 
Trident  missiles  and  B-52 
bombers — essentially  the  en- 
tire U.S.  strategic  triad. 

Important  though  it  is  to  the 
Pentagon's  growing  commit- 
ment to  defense  electronics, 
tiny  Logicon  seems  an  after- 
thought among  such  traditional  sup- 
pliers of  military  wizardry  as  $5.2  bil- 
lion (revenues)  TRW,  $5.6  billion 
Raytheon,  $1.9  billion  Northrop  and 
$572  million  E-Systems.  But  thanks 
to  Woodhull's  agile  maneuvering,  Lo- 
gicon is  getting  an  increasing  share. 

Woodhull,  48,  a  mathematician 
with  degrees  from  the  University  of 
Colorado,  left  TRW  in  1 964  to  join  the 
technical  staff  of  Logicon,  which  had 
been  set  up  three  years  previously  by 
former  TRW  engineers.  Like  many 
engineers,  the  founders  were  more  in- 

terested in  doing  "creative  work" 
than  in  building  a  business.  Not 
Woodhull.  "Jack  kept  asking  people," 
says  a  friend  from  those  days,  "why 
bother  with  this  if  we  can't  build  a 
great  big  company  and  get  rich?" 

Taking  over  as  president  in  1969 — 
with  Logicon  at  $5  million  rev- 
enues— Woodhull  focused  the  com- 
pany  on   a   painstaking  technique 

Logicon  President  John  Woodhull 
The  Soviets  know  they  will  get  hit. 

called  Independent  Verification  & 
Validation.  Spectacular  failures  in 
early  rocket  launches — those  fiery  di- 
sasters on  the  pad — were  sometimes 
traced  to  minuscule  bugs  in  flight 
control  programs.  Under  IV&V,  a  gad- 
fly like  Logicon  received  as  much  as 
20%  of  a  development  contract  just  to 
point  oiit  where  prime  contractors 
like  IBM  or  Rockwell  were  wrong. 

"We  introduced  an  element  of  com- 
petition," grins  Woodhull,  who  re- 
cently bought  a  one-man  sailboat 
with  the  intention  of  racing  in  the 

1984  Olympics.  IV&V  gave  Logicon 
access  to  high-grade  technology, 
while  building  the  credibility  it  need- 
ed to  win  lucrative  development  con- 
tracts of  its  own.  Result:  1983  book- 
ings— spread  safely  among  the  Air 
Force  and  Navy,  along  with  civil  agen- 
cies like  the  CIA  and  the  FAA — are 
projected  at  approximately  $85  mil- 
lion. By  fiscal  1986  Woodhull  expects 
revenues  to  reach  $150  million. 

Not  that  Woodhull  wasn't  impa- 
tient to  have  more.  During  the  1970s 
he  tried  to  drive  growth  with  commer- 
cial forays  as  far-flung  as  hospital  man- 
agement services  and  micrographic 
terminals  that  were  supposed  to  mar- 
ket cosmetics  for  Revlon.  Most  fiz- 
zled. According  to  Harold  Newmark,  a 
Logicon  veteran  who  was  responsible 
for  marketing  those  flops.  "We  didn't 
understand  that  what  is  cheap  for  the 
military  is  out  of  sight  for  a  hospital. 
Sometimes  we  had  solutions  for 
which  there  were  no  problems." 

Chastened,  Woodhull  has  been  cut- 
ting back  the  commercial  ventures 
since  1979.  He  sold  a  moneylosing 
newspaper  text-processing  operation 
this  year,  and  is  weighing  the  future  of 
Logicon's  factory  automation  divi- 
sion. But  concentrating  on  the 
military  has  its  rewards:  Logi- 
con's revenues  have  doubled 
since  1978,  and  earnings  per 
share  are  estimated  at  $1.65 
for  fiscal  1983  (ends  Mar.  31), 
up  34%  from  1982  earnings, 
which  were  penalized  by  a  loss 
from  discontinued  operations. 
With  $9.5  million  in  cash  and 
no  debt,  Woodhull  is  shopping 
for  a  defense-oriented  acquisi- 
tion, perhaps  with  the  elec- 
tronics hardware  capacity  that 
Wall  Street  seems  to  favor. 

Defense  electronics  analyst 
Phillip  Brannon  of  Merrill 
Lynch  points  out  that  Logi- 
con's shares  trade  on  the 
American  Stock  Exchange  for  a 
relatively  modest  10  times 
earnings,  compared  with  P/Es 
of  15  or  more  for  electronic 
warfare  hardware  producers 
like  Loral.  But,  says  Brannon,  "Current 
multiples  don't  reflect  the  prospects." 

Doesn't  Woodhull  fear  the  accumu- 
lating pressures  to  curtail  the  growth 
of  defense  budgets?  "Not  a  bit,"  he 
maintains.  The  way  he  sees  it,  Logi- 
con's electronic  innards — the  guid- 
ance and  targeting  software — are  the 
essentials  of  weaponry.  "Some  con- 
gressmen might  get  wild  ideas,"  says 
he,  in  his  best  doomsday  manner. 
"But  the  Soviets  have  to  know  that 
your  system  can  hit  them,  otherwise 
they'll  clobber  you."  ■ 


FORBES,  OCTOBER  11,  1982 

How  to  fire 
someone  you  like. 

Some  people  need  a  drink  to 

lo  it. 

Others  toy  with  the  idea  for 
lonths  before  they  get  up  the 

But  you  can  take  a  lot  of  pain 
>ut  of  the  experience. 

With  the  techniques  Robert 
[alf  reveals  in  his  new  16-page 
ooklet,  How  To  Hire  Smart. 

It  tells  you  how  to  interview 

How  to  hire. 

How  to  fire. 

It's  condensed  from  Robert 
[alfs  34  years  of  specialized  expe- 
ience  in  financial,  accounting  and 
dp  recruiting. 

And  its  yours  free  as  soon  as 
du  call  anyone  of  the  80 
obert  Half  independently 
wned  and  operated 
ffices  (look  in  the  white 
ages  for  our  number, 
r  simply  fill  in  the  coupon 

Meanwhile,  here  are  a  few 
ints  from  the  booklet. 

Don't  drag  it  out. 

When  you  have  to  let  some- 
ody  go,  don't  hem  and  haw.  The 
)nger  you  wait  to  spring  the  news, 
le  tougher  it  gets. 

Be  super  tactful.  Do  your 
est  to  give  an  explanation  that  the 


person  can  live  with.  But  by  all 
means  be  truthful. 

The  specialist  for  34  years. 

Robert  Half  pioneered  the  con- 
cept of  specialized  recruiting.  Be- 
cause a  specialist  does  a  better  job. 

His  annual  survey  booklet  has 
become  the  standard  guide  of  gov- 
ernment and  business -since  1950. 

In  fact,  when  a  Senate  Commit- 
tee needed  expert  testimony  on 
recruiting  practices  in  the  account- 
ing profession,  they  called  him. 

With  80  offices  in  3  countries, 
the  Robert  Half  organization  is  the 
largest  specialized  recruiter- 
which  means  we  can  give  you  the 
best  choice  of  first-rate 
l  candidates. 

So  when  you  hire 
k   somebody  recom- 
L   mended  by  a  Robert 
IL   Half  office,  you  may 
ml  save  yourself  the 
agony  of  firing. 


Please  send  me  your  booklet  How  To  Hire  Smart. 
(Mail  this  coupon  to  Robert  Half  International,  Inc., 
P.O.  Box  4157  New  York,  NY  10163. ) 







Telephone  (. 



dn  accounting,  financial  and  edp  personnel  specialists 

©  19H2  Robert  Half  International  Inc.  j 



As  the  nation's  longest  railroad, 
Burlington  Northern  can  offer  you 
an  outstanding  variety  of  choice 
locations  across  the  country. 

Properties  are  available 
throughout  the  25  states  we 
serve— both  our  own  substantial 
real  estate  holdings  and  those 
of  private  developers  with  whom 
we  work  closely. 

Whether  you're  looking  for  a 
rural  or  an  urban  location,  we'll 
help  you  find  the  ideal  place  for 
your  next  pic  have  sites  in 

or  near  most  ma     markets  from 
Canada  to  the  ( .  i     md  from  the 
Pacific  North wesi  Alabama 
and  Florida. 


Your  needs  don't  stop  at  real 
estate.  Neither  do  our  services. 
We  understand  the  importance  of 
natural  resources,  people 
resources,  transportation  and 
a  favorable  governmental  climate. 
So  our  local  experts  across  the 
country  will  help  you  find  the 
ideal  combination  of  property  and 
business/living  environment. 



If  you  want  to  find  out  more,  call 
Ernie  Grinnell,  Vice  President,  or 
Ed  Riebow,  Director  of  Field 

Operations,  in  St.  Paul,  at  (612) 
298-2346.  They  can  give  you  a 
wide  variety  of  location  choices  tc 
consider.  And  each  comes  with 
America's  longest  railroad  ready 
to  go  to  work  for  you. 




Industrial  Development  Department 
Room  C1082 
176  East  Fifth  Street 
St.  Paul,  Minnesota  55101 

Worried  that  your  oil  and  gas  tax  shelter 
isn't  paying  off?  Wondering  whether  to  try 
one?  Here  an  industry  analyst  sets  forth 
some  performance  yardsticks. 

How  does  your 
shelter  shelter? 

By  Jean  A.  Briggs 

Oil  and  gas  tax  shelter  pro- 
grams are  not  all  created  equal. 
Some  have  returned  as  much  as 
110%  aftertax  to  investors  at  the  end 
of  their  term.  Others  have  returned 
nothing  at  all.  How  do  you  tell  which 
will  do  well  and  which  won't  before 
you  plunk  down  your  $10,000  and 
become  a  limited  partner? 

Arthur  Jerrold  King,  president  and 
founder  of  Investment  Search,  Inc.  of 
Annapolis,  Md.,  has  been  working  on 
the  problem.  After  graduating  from 
the  University  of  Oklahoma,  where 
he  studied  accounting,  he  became  a 

salesman  for  one  of  the  major  oil  and 
gas  program  sponsors.  One  problem 
he  encountered  was  the  dearth  of  good 
information  for  investors.  So  he  start- 
ed up  his  own  business  providing 
summaries  of  the  prospectuses  of 
SEC-registered  programs. 

Soon  King  saw  patterns  in  the  offer- 
ings. He  concluded  that  there  are  four 
basic  types  of  programs.  He  has  just 
completed  a  study  that  analyzes  the 
impact  on  aftertax  return  of  program 
size,  amount  of  front-end  load  and 
type  of  drilling. 

King's  study  covers  500  partner- 
ships put  together  by  64  sponsors  be- 
fore 1981.  All  the  sponsors  were  still 

How  is  the  deal  structured? 

in  business  and  raised  money  in  1981. 
But  the  money  raised  from  the  public 
before  1981,  some  $2.5  billion,  had 
been  put  to  work  and  uncovered  ei- 
ther gushers  or  dry  holes.  Although 
the  oil  and  gas  in  successful  wells 
may  flow  for  another  20  years  or 
more,  the  ultimate  return  on  the  in- 
vestor's dollar  can  at  least  be  project- 
ed. King's  conclusion  for  the  500:  a 
disappointing  average  return  of  9.9%, 
down  susbtantially  from  12.8%  two 
years  ago.  King  attributes  this  decline 
to  the  many  new  and  inexperienced 
entrants  in  the  business. 

If  the  general  partner  and  the  limit- 
ed partners  shared  both  nondeduct- 
ible capital  costs  and  deductible  drill- 
ing costs,  King  found  that  the  limited 
partners'  chances  of  a  decent  return 
were  best.  He  calls  this  a  promoted 
interest  structure.  Sixty-six  of  the  500 
partnerships  used  it  and  raised  $232.4 
million.  Twenty-four  percent  of  these 
will  return  over  20%;  only  6.4%  will 
have  no  payout  at  all. 

The  reason  the  promoted  interest 
structure  is  the  safest  for  investors  is 
that  the  general  partner  and  the  limit- 
ed partners  have  the  same  interest. 
Says  King:  "He  is  at  risk  when  he 
drills,  just  as  you  are." 

The  riskiest  type  of  program  to 
limited  partners  turned  out  to  be  the 
one  King  calls  functional  allocation  In 
such  programs  capital  costs  are  paid 
by  the  general  partner.  Intangible  or 
drilling  or  deductible  costs  are  paid  by 

A  new  study  of  oil  and  gas  tax  shelters  finds  partner-  enues,  proved  safest.  Those  with  functional  alloca- 
ships  with  a  promoted  interest  structure,  where  gen-  tion,  where  deductible  costs  are  paid  by  outsiders 
eral  and  limited  partners  share  all  costs  and  rev-    and  capital  costs  by  sponsors,  proved  riskiest. 

Promoted  interest 
66  partnerships 
$232.4  million  raised 
11.1%  average  rate  of  return 

Carried  interest 
92  partnerships 
$344.4  million  raised 
12.9%  average  rate  of  return 

Reversionary  interest 
123  partnerships 
$425.5  million  raised 
11.5%  average  rate  of  return 

Functional  allocation 
219  partnerships 
$1,462.8  million  raised 
8.7%  average  rate  of  return 

FORBES,  OCTOBER  1  1,  19h2 



NAR  has  one  of  the  nation's 
largest  independent  grey  iron 
foundries.  More  than  half  the 
U.S.  built  cars  have  one  or 
more  castings  produced  by 
these  modern,  high  quality, 
high  volume,  cost  efficient 

NAR  finds  and  develops  oil 
and  gas  in  this  continent. 
For  more  than  twenty  years 
we  have  developed  our  own 
reserves  and  production  from 
prospects  generated  inter- 
nally or  within  the  industry. 
Our  professional  staff  directs 
operations  from  strategically 
located  offices. 

For  the  past  five  years  our 
growth  has  been  financed 
entirely  by  internally  gener- 
ated funds.  We  plan  to  con- 
tinue this  policy  which  has 
given  us  steady  and  sub- 
stantial growth  and  financial 



the  limited  partners.  Bceause  inves- 
tors can  write  off  in  the  first  year 
everything  they  put  in,  functional  al- 
location is  the  most  popular  type  of 
program.  "Investors  like  it  but  they 
usually  pay  too  much  for  it,"  says 
King.  Of  the  500  partnerships,  219 
were  of  this  type.  While  2 1.6%  of  them 
can  be  expected  to  return  over  20%  to 
investors,  35.1%  will  have  no  payout 
at  all.  Even  these  figures  may  paint  too 
rosy  a  picture.  Among  those  returning 
over  20%  arc  two  big  sponsors,  Dyco 
and  Woods  Petroleum,  which  have 
more  liberal  payout  terms  or  stronger 
financing.  "If  these  two  programs  were 
removed  from  the  sample,  the  percent 
which  returned  over  20%  would  de- 
cline to  13%,"  says  King. 

In  the  other  two  program  structures 
King  has  defined,  limited  partners  pay 
essentially  all  of  the  costs.  "The  gen- 
eral partner  pays  1%,"  says  King,  "but 
he  gets  that  in  a  management  fee.  He 
doesn't  have  to  reach  in  his  pocket  for 
any  cash."  In  one  he  calls  carried  inter 
est.  the  general  partner  shares  in  rev- 
enues from  the  first  barrel  produced. 
In  the  other,  labeled  reversionary  inter 
est,  the  sponsor  doesn't  begin  to  share 
in  revenues  until  after  the  investor 
gets  at  least  some  money  back. 

Surprisingly,  the  carried  interest 
structure  turned  out  to  be  more  favor- 
able for  investors  than  the  reversion- 
ary interest  structure.  Of  the  92  part- 
nerships with  a  carried  interest  struc- 
ture, 21.8%  will  return  over  20%; 
40%  over  10%;  29.1%  under  10% , 
and  8.6%  nothing  at  all. 

Of  the  123  programs  with  a  rever- 
sionary interest  structure,  18%  will 
return  over  20%;  22.3%  over  10%; 
47.9%  under  10% ;  and  1 1.8%  nothing 
at  all.  Both  these  structures  are  used 
primarily  by  new  sponsors  who  don't 
have  much  cash,  says  King.  "The 
problem  with  reversionary  interest  is 
it  gives  them  an  incentive  to  charge 
higher  tees  than  they  really  should, 
since  they  don't  get  a  stream  of  in- 
come as  early  as  those  with  a  carried 
interest  structure." 

But  how  can  you  tell  what  kind  of 
structure  the  deal  you  are  considering 
has?  It  won't  be  labeled  "functional 
allocation"  or  "carried  interest"  in 
the  prospectus.  Your  broker  might 
know,  but  he  might  not.  "The  an- 
swer," says  King,  "is  to  study  careful- 
ly two  particular  sections  which  are 
in  every  prospectus.  One  is  called 
'Use  of  Proceeds,'  the  other,  'Alloca- 
tion of  Costs  and  Revenues.'  These 
will  tell  you  who  is  paying  for  what 
and  who  is  getting  what.  Remember, 
you  want  to  be  sure  the  sponsor's  in- 
terest is  closely  tied  to  your  own,  that 
you  are  really  in  it  together." 

Tax  shelter  analyst  King 

"Study  two  sections  carefully.  .  .  ." 

What  do  you  look  for  beyond  struc- 
ture? One  of  the  most  important  fac- 
tors, says  King,  is  the  type  of  drill- 
ing— was  it  exploratory,  developmen- 
tal or  a  combination  of  the  two?  He 
found  that  in  his  sample  investors 
fared  best  in  developmental  programs 
and  worst  in  exploration  programs. 
That's  because  of  the  far  heavier 
downside  risk  for  exploratory  pro- 
grams. Only  6.9%  of  the  developmen- 
tal partnerships  will  not  pay  out,  as 
opposed  to  34.4%  for  those  concen- 
trating on  exploration. 

As  for  size,  King  maintains  that 
large  amounts  of  money  are  not  nec- 
essarily good.  "Companies  that  do 
well  with  a  few  million  can  go  back  to 
the  market  and  raise  larger  sums. 
They  usually  didn't  do  as  well  after 
that."  Partnerships  that  raise  between 
$5  million  and  $7  million  showed  the 
best  average  rate  of  return;  larger  part- 
nerships proved  to  be  the  riskiest — 
with  a  36.8%  nonpayout  ratio. 

Front-end  load  turned  out  to  be 
more  important  than  King  had  ex- 
pected. Programs  with  a  load  of  under 
5%  showed  a  projected  17.8%  rate  of 
return,  while  those  with  a  load  of  over 
20%  had  an  average  of  9.1%. 

Other  factors  important  to  inves- 
tors' chances,  says  King,  include  the 
sponsor's  technical  expertise,  his 
management  ability  and  bis  track  rec- 
ord. One  of  King's  competitors,  Rob- 
ert A.  Stanger  in  Fair  Haven,  N.J., 
recently  ranked  over  600  programs  ac- 
cording to  past  performance.  He  and 
King'  agree  that  sponsors  who  have 
done  well  in  the  past  tend  to  continue 
to  do  well  as  long  as  they  don't  make 
major  changes  in,  for  example,  drill- 
ing personnel  or  location. 

The  truth,  of  course,  could  be  that 
all  this  analysis  is  for  nought — that 
finding  oil  and  gas  is  really  just  a 
matter  of  luck.  But  to  the  extent  that 
experience  and  skill  influence  the 
outcome,  King's  effort  is  a  large  step 
toward  creating  a  useful  yardstick.  ■ 

FORBES,  OCTOBER  11,  19K2 

The  last  thing  you  need 
during  a  merger  or  tender  offer 
is  to  get  tangled  up  in  your  depositary. 

The  key  decisions  have 
been  made.  The  exciting  part 
is  over.  Now  somebody  has  to 
handle  the  important  part: 
making  it  all  work . 

Usually,  awarding  a  bank 
the  depositary  function  — the 
administration  and  handling 
of  the  physical  exchange  of 
stock  —  turns  out  to  be  an  after- 

And  done  with  little 
thought,  it  can  cause  a  dispro- 
portionate amount  of  grief. 
L  lability.  And  irate  stock- 

All  it  takes  is  a  small 
clericalVslip-up  with  a  small 

A  costly  delay  occurs.  You 
spend  precious  time  preparing 
lengthy  explanations  for  the 
press.  Answering  to  your  board 
of  directors.  And  fielding  ques- 
tions from  regulatory  bodies. 

The  risk  is  that  the  entire 
deal  will  be  jeopardized. 

To  avoid  all  that,  we've 
developed  80  well  thought-out 
questions  that  we  ask  you  on 
the  front  end. 

Questions  you  probably 
haven't  even  considered.  But 
they  cover  the  potential  hic- 
cups, snags  and  fuzzy  areas 
that  can  turn  a  brilliant  acquisi- 
tion into  a  dismal  administra- 
tive mess. 

The  truth  is,  most  people 
in  your  organization  don't  even 
know  what  a  depositary  does. 

And  if  it's  done  well,  they 
still  won't. 


Continental  Illinois  National  Bank  and  Trust  Company  of 
Chicago,  231  South  LaSalle  Street,  Chicago.  Illinois (>069.i 

Atlanta  Chicago  Cleveland  Dallas  Denver  Detroit  Houston  Los  Angeles  Minneapolis  New  York   San  Francisco  Seattle  While  Plains 

Army,  Air  Force,  Navy  and  Marines  are 
about  to  order  a  runabout  to  replace  the 
popular,  old  reliable  jeep. 

Learn  to  say 

By  Allan  Dodds  Frank 

The  three  contenders /<         HMMWV  (pronounced  Hum-vee)  contract,  Teledyne's 

entry  (top),  General  Dynamics'  (middle)  and  American  Motors'  (bottom) 

A  bigger,  more  mobile  — -      'hat  can  carry  five  times  the  jeep's  load. 

T|he  jeep,  trusty  workhorse  of 
the  military  for  more  than  40 
years,  will  be  retired.  The  jeep 
still  works  fine,  but  it  is  no  longer  big 
enough.  Sophisticated  new  equip- 
ment carried  by  soldiers  is  much 
heavier  than  the  weaponry  it  replaces. 
All  the  electronic  gear,  especially 
truck-mounted  TOW  missiles,  also 
require  trucks  with  ignition  systems 
that  produce  no  electronic  interfer- 
ence. To  standardize  equipment,  the 
Army,  Navy,  Air  Force  and  Marines 
have  agreed  to  buy  one  vehicle. 

The  result:  a  competition  to  pro- 
duce the  HMMWV  (pronounced 
Hum-vee) — for  High  Mobility  Multi- 
purpose Wheeled  Vehicle — which 
will  be  diesel-powered,  aluminum- 
bodied  and  capable  of  carrying  2,500 
pounds.  The  Humvee  will  accelerate 
from  0  mph  to  30  mph  in  eight  sec- 
onds, climb  a  31 -degree  slope,  ford  a 
depth  of  30  inches  or  60  inches  and 
range  300  miles. 

General  Dynamics'  Land  Systems 
division  (formerly  Chrysler  Defense 
Industries,  Inc.),  Teledyne  Continen- 
tal Motors'  General  Products  division 
and  AM  General  Corp.,  a  subsidiary  of 
American  Motors,  won  development 
contracts  in  1981  worth  up  to  $4  mil- 
lion apiece  to  produce  1 1  prototypes 
each — covering  utility,  weapons-car- 
rier and  ambulance  Humvees. 

The  stakes  are  attractive:  The  U.S. 
military's  minimum  order  is  for 
53,000  Humvees  in  the  next  five 
years — each  expected  to  cost  between 
$25,000  and  $30,000.  That  could 
mean  $300  million  a  year  in  assured 
business.  In  addition,  the  military  has 
an  option  to  buy  another  53,000.  Later 
sales,  plus  purchases  by  foreign  gov- 
ernments, could  push  the  program 
over  200,000  vehicles,  with  produc- 
tion lasting  20  years:  a  total  of  $6 
billion  worth  of  business. 

The  Army  has  been  running  field 
tests  on  Humvee  prototypes  in  Ari- 
zona, Maryland  and  Michigan.  Com- 
petitors, though,  have  not  been  al- 
lowed to  watch  the  others'  vehicles  in 
action,  and  they  are  all  keeping  mum 
about  their  own  entries.  The  Army 
awards  the  contract  in  mid-December 
or  January. 

So  it  will  be  farewell  to  the  trusty, 
popular  jeep — introduced  in  1941. 
However,  there  is  no  need  to  mourn, 
not  even  about  the  Humvee's 
$10,000-per-vehicle  higher  price.  For 
the  66%  higher  price  tag  (jeeps  sell  for 
about  $15,000),  the  military  will  get  a 
more  mobile  machine  that  can  carry 
five  times  the  load.  That's  not  infla- 
tion, that's  efficiency.  ■ 

FORBES,  OCTOBER  11,  1982 

Jack  Hay  is  typical  of  Northern 
Ireland's  craftsmen:  he  concentrates 
on  thejob,  making  products  and  profits, 
not  news. 

As  an  assembly  foreman  for  Hughes 
Tool  Company  in  Belfast,  Jack  supervises 
35  skilled  machinists  making  cones  for  drill 
bits.  In  off  hours,  he  enjoys  the  province's 
lush  countryside.  Some  28  years  ago, 
Hughes  Tool  Company  was  the  first 
United  States  company  to  establish  a  base 
in  Northern  Ireland,  where  it  has  enjoyed 
an  enviable  record  of  success.  So  much 
so  that  Hughes  recently  announced  a 
further  multimillion  dollar  investment  in 
Northern  Ireland. 

Calvin  Sholtess,  President  of  Hughes 
Tool  Division's  worldwide  operation,  in- 
cluding the  Belfast  operation,  sums  it  up 
this  way:  "Belfast  was  our  first  facility 
outside  the  United  States.  Its  history  of 
quality  products  produced  by  quality  peo- 
ple has  resulted  in  an  outstanding  record 
of  export  achievement.  The  operation  is 
managed  and  manned  with  Northern 
Ireland  people.  Their  success  was  a 
major  reason  for  our  recent  expansion 
into  the  Monkstown  facility." 

If  you  have  any  doubts  about  how 
smoothly  business  continues  to  function 
today  in  Northern  Ireland,  ask  anyone 
who's  been  here  recently.  Better  yet,  come 
see  for  yourself.  For  further  information, 
contact  Ian  Walters  or  George  Forster  at 
the  Industrial  Development  Board  for 
Northern  Ireland,  New  York  office, 
150  E.  58th  Street,  New  York,  NY  10155. 
Or  call  (212)  593-2258. 

Ireland  works. 

A  visit  will  convince  you. 



The  Ghawar.  in  Saudi  Arabia,  is 
the  largest  oilfield  in  the  world 

NaT  SAP  For.  AN  old  LOFfcjN 

Texas,  Boy,  HmTifano/i-  * 
Company  ckes  it,  Aramgz 


o/z  me  3/&$e:st. 


M.  J.  LVdh15 

NAHCO  FkTftyjEOhA  Cd. 

Tulsa,  Oklahoma  74-/9o 

No  54 


Aramco,  the  largest  oil  producer  in  the  world,  is  currently  involved  in  projects 
worth  billions.  Challenging  positions  are  open  for  experienced  geophysicists, 
geologists,  and  petroleum  engineers.  Call  (713)  750-6965.  Aramco  Services  Company, 
Mail  C  ode  Z4062-2,  P.O.  Box  53607,  Houston,  Texas  77052.  ARAMCO 


If  s  having  to  decide 
with  absolute,  total  uncertainty. 

You  face  a  clear-cut  decision. 

You  either  increase  production  or  you  don't. 

Which  is  to  say  you  either  succeed  or  you  fail.  Such  decisions  are  your 
life's  work. 

So  when  you've  got  to  sign  on  the  line,  but  there's  not  a  scrap  of  hard 
evidence  to  help  you,  momentary  loss  of  vision  is  entirely  normal. 
That's  "Informania." 

The  solution  is  information.  The  right  information.  In  the  right  form.  For 
the  right  people  in  the  right  place  and  time. 

Burroughs  can  help.  Because  we  know  how  to  manage  information.  We've 
put  95  years  of  thought  and  experience  into  it.  We  offer  a  comprehensive  solution 
to  the  problem  of  "Informania." 

Our  computers  and  office  automation  systems  can  help  you  collect, 
compose,  analyze,  store,  recall,  reformulate  and  distribute  information. 

So  that  you  will  know.  And  act  with  certainty. 

When  "Informania''  strikes,  the  answer  is  Burroughs.  Write  for  our 
brochure:  Burroughs  Corporation,  Dept.  FB-77,  Burroughs  Place,  Detroit, 
Michigan  48232. 

Building  on  strength 

Taxing  Matters 

Yon  think  companies  will  do  anything  to 
lower  their  tax  bill?  Well,  think  again. 

The  tax  shelter 
nobody  wants 

By  Laura  Rohmann 

W'ould  you  believe  every  cor- 
poration in  the  country  is  ig- 
noring a  legitimate  method 
or  sheltering  income  and  boosting 
:armngs?  It's  a  legal  and  guaranteed- 
:o-work  tax  scheme,  promoted  during 
:he  last  few  years  by  two  Ivy  League 
professors,  several  investment  advis- 
ers and  even  Fortune  magazine,  in  an 
irticle  entitled  "How  to  Slash  Your 
Company's  Tax  Bill." 

Here's  how  it  would  work.  In  step 
me  of  the  scheme,  a  company's  pen- 
sion fund  sells  all  its  stocks  and  uses 
:he  proceeds  to  buy  bonds.  Then  the 
:orporation  itself  does  the  reverse,  is- 
suing new  bonds  and  using  the  pro- 
:eeds  to  buy  back  the  same  portfolio 
Df  stock  the  pension  fund  sold. 

Why  bother?  According  to  plan  ar- 
;hitects  Fischer  Black  of  MIT  and  for- 
ner  Harvard  Professor  Irwin  Tepper, 
»fou  buy  the  bonds  for  the  pension 
und  because  that's  where  the  pension 
und  shelter  is  most  effective.  All  the 
ncome  from  bonds  is  taxed  as  m- 
:ome,  whereas  the  appreciation  on 
:ommon  stocks, is  taxed  at  the  lower 
:apital  gains  rate.  The  corporation  is- 
sues new  bonds  and  uses  the  proceeds 
:o  buy  its  pension  fund's  stock  portfo- 
lio or  a  mutual  fund  of  similar  make- 
jp.  Why  issue  bonds  instead  of  new 
:quity?  Its  tax  bill  would  be  lower 
since  interest  payments  are  deduct- 
ible and  dividends  are  not.  Even  at  an 
interest  level  of  15%  you  wind  up 
saving  money  if  your  taxable  dividend 
payout  ratio  is  above  8%  (assuming  a 
corporate  tax  rate  of  46%). 

There's  no  legal  problem.  Bonds  are 
thought  to  make  the  pension  fund 
more  secure,  so  ERISA  presumably 

won't  come  after  you  for  that.  And 
don't  worry  about  the  fund's  bonds 
yielding  less  than  the  old  stock  portfo- 
lio did.  You  have  that  same  portfolio 
contributing  to  the  company  coffers. 
Besides,  the  more  money  you  are  re- 
quired to  contribute  to  the  pension 
fund,  the  more  tax  savings  are  created. 
"You  should  want  to  put  more  money 
into  the  fund  when  the  actuary  asks 
you  to,"  says  Tepper,  who  currently 
owns  a  pension  consulting  firm  and  is 
a  part-time  lecturer  at  MIT. 

So  where  does  the  plan  fall  apart? 
When  it  enters  the  real  world,  says 
Mario  Leo,  vice  president  of  finance  at 
Towers,  Perrin,  Forstcr  &  Crosby. 
What  the  plan  creates  is  a  more  highly 
leveraged,  and  so  more  risky,  com- 
pany because  you  can't  really  look  at 
the  pension  fund  when  evaluating  the 
company.  "I  don't  believe  the  bankers 
arc  going  to  say,  'Well,  you're  not  as 
highly  leveraged  because  we're  going 
to  take  into  account  your  pension 
fund  assets,'  "  says  Leo.  "This  idea 
assumes  a  world  in  which  the  pension 
fund  is  really  an  asset  of  the  employer 
from  the  banker's  standpoint,  and 

that's  not  the  case." 

It's  not  the  case  from  many  corpo- 
rate treasurers'  standpoints,  either. 
Says  Bennett  Shaver,  Goodyear  Tire 
&  Rubber's  assistant  treasurer,  who 
presides  over  $1.4  billion  of  pension 
assets:  "Pension  funds  arc  separate 
entities,  and  you  just  have  to  deal 
with  them  as  separate  entities."  Al- 
though Fortune  estimated  tax  savings 
of  $21  million  a  year  and  stock  appre- 
ciation of  25%  if  Goodyear  were  to 
adopt  the  plan  1 8  months  ago,  Shaver 
says,  "We  don't  have  any  interest  at 
all  in  distorting  the  investment  pat- 
tern of  our  pension  fund." 

Tepper  agrees  it's  hard  to  swallow 
at  first.  But  he  sticks  to  his  point: 
"The  idea  that  you  have  to  get  com- 
fortable with  is  that  a  pension  fund 
portfolio  of  a  company,  for  all  practi- 
cal purposes,  is  really  like  any  other 
corporate  asset,  in  the  sense  that,  as 
that  fund  docs  better  or  worse,  the 
company's  earnings  and  the  share- 
holders are  better  or  worse  off." 

Interesting  point.  Unfortunately, 
the  employees  who  are  counting  on 
the  pension  fund  for  monthly  checks 
after  they  retire  may  not  view  the 
pension  fund  as  just  another  corporate 
asset.  They  may  have  the  notion  that 
the  fund  belongs  to  them.  Their 
unions  may  have  the  same  idea. 

And  although  companies  have  been 
known  to  play  fast  and  loose  with  the 
assets  of  their  pension  funds  in  the 
past,  they  are  clearly  hesitant  to  do  so 
in  any  way  that  would  require  further 
disclosure  in  their  annual  reports,  as 
this  plan  would. 

So,  every  corporation  in  the  country 
is  passing  by  this  supposedly  fool- 
proof opportunity  to  save  tax  dollars. 
"They're  just  not  ready  for  the  pen- 
sion investment  to  be  part  of  overall 
corporate  strategy,"  says  Tepper. 

Score  one  for  the  companies. 

A  retirement 
ploy  retired 

It's  a  classic  problem:  The  founders 
of  a  family  business  decide  it's 
time  to  pass  the  company  on  to  the 
next  generation.  Yet  they  want  to  be 
sure  they  will  be  able  to  pull  a  fair 
amount  of  cash  out  of  the  company  at 
some  point  in  the  future.  To  mini- 
mize the  tax  bite  on  that  cash  they 
employ  the  "preferred  stock  bailout." 
That  is,  they  swap  their  common 
stock  in  the  business  for  preferred 
stock.  By  doing  that  they  freeze  the 
value  of  their  estates,  because  the  val- 
ue of  the  preferred  is  determined  by 

FORBES,  OCTOBER  11,  1982 


How  do  you  improve  a  perfect  product? 



Taxing  Matters 

its  fixed  interest  rate,  not  the  growth 
prospects  of  the  company.  When  they 
want  cash,  they  can  sell  some  of  their 
stock  and  simply  pay  capital  gains 
tax  on  the  proceeds,  not  a  straight 
income  tax,  as  would  be  the  case  if 
they  took  out  that  cash  in  the  form 
of  dividends. 

Now,  with  the  1982  Tax  Act,  that  is 
over.  "With  little  fanfare  or  discussion 
in  either  house,  Congress  has  com- 
pletely changed  the  rules  here,"  says 
Gilbert  Bloom  of  Peat,  Marwick.  "Now 
you  practically  have  to  die  with  the 
preferred  stock  before  you  can  reap  the 
capital  gains  advantage." 

Let's  take  an  example:  John  and 
Mary  Smith,  founders  and  75%  share- 
holders of  the  XYZ  Corp.,  are  neanng 
retirement  age.  They  want  to  leave 
the  company  to  their  son  without 
paying  ruinous  estate  taxes.  So  they 
swap  their  75%  interest  (say  75,000 

"Congress  has  changed  the 
rules.  Now  you  have  to  die 
with  the  preferred  shares 
before  you  can  reap  the 
capital  gains  advantage." 

shares)  in  the  company,  now  run  by 
their  son,  Jack,  who  has  the  remaining 
25%  interest,  for  preferred  shares. 
Jack  now  owns  100%  of  the  company 
and  the  value  of  John  and  Mary's  es- 
tate is  fixed  for  estate  purposes. 

Then  John  and  Mary  wish  to  sell 
some  of  their  shares,  say  10,000  (at 
$10  per  share).  They  pay  a  tax  on  that 
of  $20,000  (capital  gains),  instead  of 
the  $50,000  (income)  they  would  have 
paid  if  they  had  taken  that  money  out 
through  dividends. 

Those  were  the  good  old  days.  Un- 
der the  new  law,  the  preferred  stock 
John  and  Mary  hold  is  now  considered 
tainted.  That  means  if  they  sell  some 
of  their  preferred  it  will  be  taxed  as 
regular  income.  No  more  capital  gains 
advantage  unless  all  the  preferred  is 
sold  at  once.  This  transaction  is  seen 
by  the  IRS  to  be  passing  the  benefits 
to  identical  economic  units.  Transla- 
tion: shifting  money  around  in  a  fam- 
ily to  avoid  taxes. 

Years  ago,  the  old  preferred  stock 
bailout  was  considered  reasonable  by 
Congress.  It  was  seen  as  an  incentive 
for  people  to  work  hard  and  build  up  a 
business.  "It  used  to  be  thought  of  as  a 
mom-and-apple-pie  situation,"  says 
Bloom.  But  when  the  government 
needs  cash,  mom  and  apple  pie  are 
expendable. — Theodore  Lowen 


(St.  Louis'  other  business  district) 

Mid-America's  newest  executive  office  center  •  Metropolitan  ad- 
vantages without  city  congestion  •  Competitively  priced  office 
space  •  20  minutes  from  Lambert  International  Airport  •  Ready 
access  to  multiple  industrial  parks  •  Excellent  highway  access 
•  Fine  residential  areas  •  Central  to  metro  St.  Louis'  wealth  of 
educational  and  cultural  activities  •  U.S.  geographic  and  popula- 
tion center  •  Government  center  of  St.  Louis  County 
For  more  information  on  why  Clayton  is  the  location  for  your 
Mid-America  office  write:  James  C.  Laflin,  Clayton  Tomorrow,  Inc., 
City  of  Clayton,  Suite  247,  10  N.  Bemiston  Ave.,  Clayton,  MO  63105 

CLAYTON:  world  headquarters  for  Apex  Oil,  the  Brown 
Croup,  Charter  National  Life  Ins.  Co.,  Chromalloy 
American,  Coin  Acceptors,  Inc.,  General  Dynamics, 

M~Jk      Graybar  Electric,  ITT  Diversified  Credit  and  7-UP. 

Invest  in  the  Bond  Rind  that  earns 



Municipal  bond  rates  have  rarely 
compared  so  favorably  with 
taxable  yields,  and  the  T.  Rowe 
Price  Tax-Free  Income  Fund 
puts  these  high  returns  in  easy  reach.  The 
higher  your  tax  brackets,  the  better  our 
yield  looks. 

And,  unlike  investments  in  an  individual, 
long-term  municipal  bond,  you  have  the  addi- 
tional advantage  of  daily  access  to  your  money. 

You  also  enjoy  these  other  important 

•  No  sales  charge. 

•  No  penalty  for  early  withdrawal. 

•  Free  checkwriting  over  $500. 

•  Free  exchange  with  other  T  Rowe 
Price  Funds. 

•  Minimum  investment  of  only  $1,000. 

Remember,  when  interest  rates  are  de- 
clining, longer  term  investments  such  as  our 
Tax-Free  Income  Fund,  enable  you  to  enjoy 
higher,  more  stable  income  than  money  mar- 
ket securities.  And,  even  though  the  Fund's 
share  price  will  vary  and  could  decline,  there 
is  also  an  opportunity  for  gain.  So,  if  you're 
a  high  bracket  investor  seeking  a  high,  rela- 

tively stable  level  of  tax-free  income,  consid- 
er the  T.  Rowe  Price  Tax-Free  Income  Fund. 
TOLL  FREE  1-800-638-5660 
In  Maryland  1-800-492-1976 
In  Baltimore  547-2308 
Yield  should  be  considered  together  with  changes 
inshare  price  —  both  will  fluctuate  as  market 
conditions  change.  Income  may  be  subject  to  state 
and  local  taxes. 


T  Rowe  Price 

T.  Rowe  Price  Marketing.  Inc.  Dept.  B19 
100  E.  Pratt  St..  Baltimore.  MD  21202 

Please  send  me  a  prospectus  on  your  Tax- 
Free  Income  Fund  with  more  complete  in- 
formation, including  management  fee  and 
other  charges  and  expenses.  I  will  read  it 
carefully  before  I  invest. 





FORBES,  OCTOBER  11,  1982 


Tom  Bailey's  hard-won  investment  strategy 
has  put  Janus  Fund  on  top.  The  question 
now:  Cayi  it  stay  there? 

Rocky  Mountain 

By  Carol  E.  Curtis 

T|om  Bailey,  president  and  direc- 
tor of  the  Denver-based  Janus 
Fund,  has  the  kind  of  easygoing, 
personable  manner  you  might  expect 
from  a  ski  instructor  or  camp  counsel- 
or. His  broad,  crinkly-faced  smile  is 
earnestly  reassuring.  As  he  slides  his 
lanky  form  into  an  armchair,  you 
want  to  lean  back,  too. 

This  relaxed  manner  is  deceiving. 
Bailey,  45,  manages  one  of  the  hottest 
mutual  funds  around.  Over  the  past 
12  years  his  $59  million  Janus  Fund 
has  posted  an  average  annual  total 
return  of  18.4%.  It  has  done 
well  in  both  up  and  down  mar- 
kets— and  holds  the  honor  of  be- 
ing the  top-ranked  no-load  fund 
in  Forbes'  annual  mutual  fund 

Despite  his  laid-back  appear- 
ance, Bailey — who  makes  all  Ja- 
nus Fund  investment  decisions 
himself — came  by  his  expertise 
the  hard  way.  After  receiving  an 
M.B.A.  from  the  University  of 
Western  Ontario  in  1962,  he  did 
odd  jobs  in  Aspen  to  be  near  the 
ski  slopes.  When  his  money  ran 
out,  he  went  to  work  for 
Boettcher  &  Co.,  a  Denver- 
based  brokerage  firm.  Soon  Bai- 
ley was  off,  unhappily,  to  Man- 
hattan. "When  I  went  to  New 
York  from  Denver,  my  ski 
friends  thought  it  was  Siberia," 
he  explains. 

Confined  to  a  office  high  in 

the  Chase  Ma.  "adding,  Bailey 

itched  for  Weste  indepen- 
dence. So  he  roun  ;  six  friends — 
including  his  mod  each  had 

$25,000   to   spare,  set   up  a 

$  1 50,000  fund.  Boetu  allow 
him  to  make  trades,  so  i  egular- 

ly  excused  himself  to  men's 

room  and  called  his  own  broker  from 
a  pay  phone  downstairs. 

That  was  1968,  and  the  finagling 
paid  off.  Inside  of  a  year,  Bailey  had  a 
nice  profit  to  show  on  the  $150,000. 
"In  that  market,"  Bailey  says,  "al- 
most anything  you  did  was  right.  But  I 
had  no  clue  then  that  this  game  is 
tougher  than  it  looks." 

Bailey  soon  caught  the  eye  of  Joe 
Kelly,  a  Denver-based  money  man- 
ager who  had  his  own  sales  force.  He 
invited  Bailey  to  market  his  stock 
fund  through  Kelly's  management 
company.  The  chance  to  go  west 
again  was  irresistible,  and  Bailey  set 

Tom  Bailey  of  Janus  Fund 
Knowing  when  to  sell. 

up  shop  in  Denver  in  1969  with 
$650,000.  By  the  time  Janus  Fund  was 
operating,  however,  it  was  1970 — and 
Wall  Street  was  on  the  skids. 

Bailey's  partner  soon  went  his  own 
way,  leaving  Janus  Fund  with  little 
but  its  name  and  a  pile  of  bills.  To 
survive  in  those  early  years,  Bailey 
dropped  the  fund's  sales  charge  and 
slashed  overhead,  operating  out  of  a 

The  Funds 

small  room  with  two  telephones  for 
$100  a  month.  He  then  started  to 
build  a  new  client  list. 

Bailey  knew  that  if  he  could  per- 
form for  his  clients  during  those  lean 
years,  he  could  win  loyalty.  So  he 
formulated  a  strategy  that  he  still 
uses:  Bailey  keeps  an  unusually  high 
cash  position — sometimes  40%  in  a 
bull  market  and  80%  when  stocks 
are  falling.  With  his  remaining  as- 
sets, Bailey  goes  for  industries  he 
feels  will  react  favorably  to  the  cur- 
rent political  and  economic  climate. 
Years  ago,  for  example,  he  was  into 
energy  and  technology. 

Now  he  likes  defense  stocks.  When 
the  big  rise  in  military  spending  be- 
came clear  in  1980,  Bailey  loaded  up 
on  companies  like  Lockheed — his  sin- 
gle biggest  equity  holding — as  well  as 
Hazeltine  and  Whitehall. 

Bailey's  other  current  favorites  are 
companies  selling  low-ticket  con- 
sumer items.  He  holds  large  positions 
in,  for  example,  Denny's,  House  of 
Fabrics  and  McDonald's. 

Bailey's  real  success,  however, 
comes  not  from  buying  but  selling. 
"He  is  incredibly  undogmatic,"  says 
Gordon  Yale,  Janus  Fund's  secretary- 
treasurer,  "and  absolutely  shameless 
about  changing  his  mind."  That 
means  as  soon  as  Bailey  senses  weak- 
ness, he's  gone.  Unlike  many 
money  managers  who  stuck 
with  energy  stocks  when  oil 
prices  began  to  collapse,  for  ex- 
ample, Bailey  had  sold  all  of  his 
energy  holdings  by  early  1981. 

He  has  just  done  the  same 
with  his  technology  stocks- 
companies  like  MCI  Communi- 
cations, Telex  and  Xidex.  "At 
the  start  of  a  new  [up]  cycle,  the 
names  you  make  money  with 
are  usually  new  ideas,"  Bailey 

This  flexible,  fast-reacting  ap- 
proach has  more  than  accom- 
plished Bailey's  goal  of  building 
a  client  list.  But  the  real  ques- 
tion is  how  long  he  can  keep  up 
the  good  work.  The  history  of 
'  mutual  funds  is  littered  with 
the  bodies  of  hotshot  money 
managers  whose   strategies  turned 
sour.  And  at  the  moment  new  money 
is  pouring  into  Janus.  The  fund  took 
in  $16  million — 27%  of  its  assets — in 
the  six  weeks  since  it  hit  the  Forbes 
mutual  fund  honor  roll  (Forbes,  Aug. 
30).  "How  big  is  too  big?"  asks  Bailey. 
"I  don't  really  know."  If  Janus  keeps 
growing  at  its  current  rate,  he  may 
soon  find  out.  ■ 

FORBES,  OCTOBER  11,  1982 

countless  portfolios  are  still  being  managed  by 
strategies  developed  in  the  60's  and  70's. 

If  your  portfolio  has  fallen  victim  to  the 
jncertainties  of  the  changing  world  of  the80's,  we 
lave  a  suggestion:  Investigate  grain  futures  on  the 
vorld's  leading  and  largest  futures  exchange. 

Bull  market,  Bear  market  or  in-between  there's 
ilways  opportunity  in  grain  futures.  Opportunity  for 
;ommercial  users  to  hedge  risk;  opportunities  for 
)rofit-minded  traders  to  realize  gains. 

Let's  take  corn  futures  for  example.  For  a  modest 
iecurity  deposit  (margin),  you  can  purchase  (go  long) 
1 5,000  bushel  corn  futures  contract.  A  10  cent  per 
>ushel  increase  over  the  price  you  paid  means  a  $500 
ncrease  in  the  value  of  your  position.  Of  course,  a 

comparable  loss  would  result  from  a  10  cent  decrease 
in  corn  prices. 

With  that  in  mind,  when  you're  seeking  opportunity 
in  a  bear  market,  you  simply  take  a  short  position  in 
anticipation  of  a  decrease  in  corn  prices. 

The  information  necessary  to  develop  a  corn, 
wheat,  soybean  or  oat  strategy  for  a  portion  of  your 
portfolio  is  readily  available  from  thousands  of 
registered  brokers  and  from  the  many  commodity 
funds  now  available  to  the  public.  It  won't  take  you  long 
to  discover  just  how  useful  the  futures  market  can  be 
for  commercial  traders  seeking  to  transfer  risk.. .and 
for  individuals  willing  and  able  to  accept  risk  in 
pursuit  of  profit. 

For  more  information  send  in  the  coupon  or  call 
800/621-4641.  In  Illinois  800/572-4217. 


FOR  THE  704 

Investigate  Corn  Futures. 
Growth  Opportunity  in  the  80's. 

Please  send  your  corn  futures  literature  and  (check  if  desired) 
literature  explaining: 

Soybean  futures 

Wheat  futures 

Oat  futures 

MAIL  TO:  Marketing  Manager-Grain  Futures 
Chicago  Board  of  Trade 
LaSalle  at  Jackson,  Chicago,  Illinois  60604 






§i  Chicago  Board  of  Trade 

Primark  has  been  taking  the  heat  for  high 
natural  gas  prices  in  Detroit,  but  Bob  Stew- 
art would  rather  blame  his  former  boss. 

Who's  at 
fault  here? 

By  Carol  E.  Curtis 

Robert  Stewart,  the  new  chief 
executive  of  Primark  Corp., 
parent  of  Detroit's  only  natu- 
ral gas  utility,  still  has  an  office  down 
the  hall  from  Arthur  Seder  Jr.,  his  old 
boss  at  American  Natural  Resources 
Co.  That's  because,  until  last  year, 
Primark  was  a  unit  of  ANR,  which 
owns  the  nation's  seventh-largest 
pipeline  company — and  Stewart  still 
hasn't  had  time  to  move  out. 

ANR  spun  off  Primark  to  promote 
faster  growth.  Considering  Pnmark's 
problems,  that  was  probably  wise.  But 
what  ANR  may  not  have  bargained 
for  was  the  tough  new  stance  its  for- 
mer subsidiary  now  is  taking — 
against  ANR. 

Stewart,  58,  and  a  Harvard  MB. A., 
has  just  withdrawn  from  the  Ameri- 
can Gas  Association,  the  main  indus- 

try trade  group,  because  he  feels  that 
pipelines  like  ANR's  have  too  much 
influence.  He  is  also  leading  a  vigor- 
ous attack  against  pipeline  pricing 
policies.  "They  are  protected  from  the 
marketplace,"  he  says.  "That's  why 
our  gas  prices  are  so  high  today." 

Since  1975  the  price  that  Pnmark's 
Michigan  Consolidated  subsidiary 
pays  for  its  gas  has  gone  up  375%. 
About  1 70%  of  the  increase  has  come 
since  1978,  when  Congress  passed  the 
Natural  Gas  Policy  Act.  Primark's  gas 
now  sells  for  an  average  of  $4.50  per 
thousand  cubic  feet,  50  cents  more 
than  the  equivalent  price  of  a  barrel  of 
industrial  fuel  oil. 

In  depressed  Detroit,  that  has  be- 
come a  fighting  issue.  To  protest  the 
soaring  costs,  the  Michigan  Citizens 
Lobby  has  put  a  proposition  on  the 
Nov.  2  ballot  that  would  disallow  the 
automatic  passthrough  of  higher  gas 

Robo  t  Stewart,  chief  executive  of  Primark 

Consumer  anger  should  be  directed  at  pipelines,  not  utilities. 

costs  by  the  state's  utilities.  It  is  one 
of  the  first  such  propositions  to  make 
it  to  a  ma|or  referendum,  and  it  is 
ominous  for  Primark.  If  it  passes, 
which  some  see  as  likely,  it  will  be 
much  more  difficult  for  Primark  to 
recover  its  raw  fuel  costs. 

Stewart,  however,  believes  that 
consumers  should  direct  their  anger 
at  the  pipelines.  After  all,  he  points 
out,  they  contracted  for  the  gas  to 
begin  with.  "The  producer  is  going'to 
get  what  he  can,"  Stewart  says.  "It  is 
the  pipeline  that  agreed  to  pay  the 

Primark's  chairman  blames  high 
gas  prices  on  so-called  "take-or-pay" 
contracts,  which  many  pipelines 
signed  when  gas  supplies  were  tight. 
Under  these  agreements,  the  compa- 
nies must  accept  a  fixed  amount  of 
gas  at  the  maximum  price  allowed  by 
federal  law.  But  with  the  market  glut- 
ted with  gas,  such  inflexible  contracts 
are  a  bonanza  for  producers. "Pipe- 
lines have  more  gas  than  they  can 
handle,  and  still  prices  keep  going 
up,"  Stewart  complains. 

Stewart  wants  Congress  to  modify 
the  "take-or-pay"  provision,  a  posi- 
tion he  is  pushing  as  a  leader  of  a 
Washington  lobbying  group,  United 
Distribution  Cos.  That  would  stop 
Primark  from  having  to  pay  for  gas  it 
can't  sell.  "Pipelines  must  assume  the 
risk  for  their  actions,"  he  says.  "I 
don't  mind  being  the  villain  if  that's 
what  it  takes." 

The  referendum  comes  on  top  of 
another  growing  concern:  bad  debt. 
The  utility  estimates  customers  who 
won't — or  can't — pay  account  for 
2.5%  of  revenues,  up  from  the  indus- 
try average  of  under  2%.  "It  is  partly 
the  nature  of  our  service  area,"  says  a 
spokesman,  pointing  out  that  Detroit 
is  plagued  with  15%  unemployment. 

Despite  all  this,  Stewart's  nine- 
month-old  company  is  actually  show- 
ing income  gains,  thanks  in  part  to  last 
year's  cold  winter.  Primark's  earnings 
should  be  up  27%,  to  $24  million,  on 
revenues  of  $1.8  billion.  As  Ron  Cas- 
sinari,  analyst  at  E.F.  Hutton,  points 
out,  that  will  bring  Primark's  return 
on  equity  up  to  7.4%  from  1 98 1  's 
5.4%..  But  compare  that  with  other 
major  utilities  in  the  state  that  return 
about  11%.  So,  it  will  take  more  than 
another  subzero  winter  to  solve  the 
company's  current  problems.  Ulti- 
mately, the  best  way  to  get  gas  prices 
down  is  to  let  the  free  market  work — 
and  that  isn't  likely  to  happen  until 
1985,  when  the  Natural  Gas  Policy 
Act  expires.  Meanwhile,  at  least,  the 
feuding  among  Primark,  ANR  and 
consumers  will  generate  heat  in  De- 
troit over  the  coming  months.  ■ 


FORBES.  OCTOBER  11,  1982 

Jed  Taylor 

your  dragline's  ready" 

Now  the  manager  of  the 
Sarpy  Creek,  Montana,  coal 
mine  can  double  production. 
No  wonder  he's  smiling. 

Jed  Taylor  s  new  dragline  is  one 
of  the  West's  largest,  a  6,000-ton 
Bucyrus-Erie  Model  2570,  and 
assembling  it  was  a  challenge,  to  say 
the  least. 

The  M-K  crew  that  did  it  used 
550-tons  of  crane  capacity;  burned 
up  70-tons  of  welding  rod  and  wire; 
X-rayed,  stress-relieved  and  sonic- 
tested  74  mast  and  boom  joints;  and 
survived  31  weeks  of  snow,  wind  and 
sub-zero  weather. 

It  was  no  picnic,  but  it  more  than 
doubled  the  capacity  of  one  of  the 
most  efficient  mines  in  the  world,  a 
mine  designed,  engineered,  con- 
structed and  operated  by  one  of  the 
most  experienced  and  capable  out- 
fits in  the  world,  Morrison-Knudsen. 

When  it  comes  to  mining,  M-K  can 
do  it  all  — feasibility  studies,  permits, 
EIS's,  mine  plans,  design,  engineer- 
ing, construction,  training  and  oper- 

ating, and  that's  about  what  M-K  did 
at  Sarpy  Creek. 

M-K  people  not  only  designed  and 
built  the  mine;  they  also  designed 
and  built  the  mine's  water  tankers, 
coal  haulers  and  37-mile  spur  line. 
They  implemented  an  extensive 
reclamation  program  that  uses  17 
different  grasses,  bushes  and  trees. 
And  they  provided  opportunities  for 
the  Crow  Indians  who  make  up  more 
than  half  the  mine's  work  force,  and 
whose  tribe  has  leased  the  tract's 
mineral  rights. 

The  result?  In  five  years,  the  mine 
has  yet  to  miss  a  shipment,  and  it's 
never  been  weathered  out.  When  a 
"Hundred  Year  Storm'  closed  every 

other  Montana  mine  in  1978,  Sarpy 
Creek  didn't  miss  a  beat. 

"We  got  damn  wet,  though','  recalls 
Taylor,  a  third  generation  coal  miner 
from  Kentucky  who  knows  about  all 
there  is  to  know  about  running  a 
strip  mine. 

Taylor's  experience  and  M-K's 
technology  make  Sarpy  Creek  hum 
You  can  feel  the  rhythm.  Everything 
moves  in  synch  all  the  time,  precisely 
according  to  a  long-range  plan. 
That's  why  quotas  are  always  met. 

"A  genius  engineered  this  mine'.' 
says  Taylor.  "Of  course'.'  he  adds  with 
a  wink,  "it  also  takes  a  genius  to 
manage  it'.' 

If  you've  any  sort  of  a  project 
on  your  drawing  board,  our  .. 
"geniuses"  can  probably  con-  u  - 
tribute  to  its  productivity  Let's 
talk  about  it.  Call  our  CEO,  Bill 
McMurren,  at  (208)  386-6700, 
and  he'll  get  the  right  M-K  peo- 
ple to  your  office  PDQ. 

They'll  tell  you  what  M-K  can 
do  for  you,  and  they'll  take  no  j 
more  than  one  half  hour 


Boise,  Idaho  83729 

Engineers.  Builders  Developers.  Managers.  Equal  Opportunity  Employers. 

John  Tishman,  the  builders  builder,  is  tired 
of  simply  earning  fees.  Now  he  also  wants 
a  piece  of  the  action. 


By  Howard  Rudnitsky 

Joint  Tishman  of  Tishman  Realty  &  Construction  Co. 
A  building  for  you,  a  shelter  for  him. 

Iook  up  when  you  are  around  any 
_  big  commercial  construction 
I  job  and  you  are  likely  to  see  the 
name  Tishman.  Over  the  years,  Tish- 
man Realty  &  Construction  Co.,  Inc. 
has  managed  such  massive  projects  as 
New  York's  World  Trade  Center,  De- 
troit's Renaissance  Center,  the  John 
Hancock  Building  in  Chicago  and 
Newark  International  Airport.  And 
last  month  Tishman  finished  the  first 
phase  of  Walt  Disney's  $800  million 
Epcot  Center  in  Orlando. 

Having  your  name  on  the  I-beam, 
however,  is  a  far  cry  from  owning  a 
property.  Tishman  Realty  gets  a  mod- 
est 2'/2%  to  4%  of  total  cost  as  con- 
struction manager.  As  a  "builder's 
builder"  the  firm  bears  no  investment 
risk — although  it  may  sully  its  top- 
drawer  reputation  if  it  does  a  poor 
project-management  job. 

Until  the  early  Seventies,  however, 
things  were  different  at  Tishman.  The 
company  was  more  than  just  a  con- 
struction manager  at  projects  such  as 
666  Fifth  Avenue  in  New  York,  Gate- 
way Center  in  Chicago  and  525  Mar- 
ket Street  in  San  Francisco.  Tishman 
was  also  the  developer — and  often  the 
Tishman  name  stayed  on  the  build- 
ings after  the  scaffolding  came  down. 

In  those  days  Tishman  was  publicly 
owned  with  3,000  shareholders — in- 
cluding several  Tishmans.  But  Tish- 
man ran  afoul  of  the  overbuilt  New 
York  market  in  the  mid-Seventies 
with  a  well-known  white  elephant  at 
1166  Avenue  of  the  Americas.  That 
building  produced  $30  million  in 
losses  and  highlighted  two  crucial  ac- 
counting problems  for  the  company: 
As  a  public  corporation,  Tisbman 
couldn't  use  tax  shelters  available  to 
private  developers.  Even  worse,  Se- 
curities &  Exchange  Commission  ac- 
counting rules  required  the  company 
to  report  a  negative  net  worth. 

"That  meant  we  couldn't  even  pay 
a  dividend,"  explains  CEO  John  Tish- 
man, 56,  the  most  technically  orient- 
ed of  the  Tishman  clan.  "It  was  terri- 
ble for  our  stock  price,  which  fell  to 
11.  Yet  cash  flow  was  $14  million  a 
year.  If  you  capitalized  that,  we  were 
worth  $120  million  by  real  estate 
valuation  standards — about  $30  a 

Looking  at  those  numbers,  Tish- 
man's  directors — a  number  of  whom 
were  family  members — voted  to  liqui- 
date the  company  and  its  24  proper- 
ties. That  brought  in  about  $30  a 
share,  and  the  Tishman  clan  split  into 
three  camps.  Though  competitive  and 
occasionally  quarrelsome,  all  the  fac- 
tions kept  their  offices  in  Manhat- 


FORBES,  OCTOBER  11,  1982 

An  inteijjgently  structured 
correspondent  network 
eliminates  friction 
in  all  the  right  spots. 

The  smoothness  with 
which  international 
business  is  transacted  de- 
pends not  only  on  having  the  right 
correspondent  banking 
connections  in  the  right 
countries.  It's  also  a  matter 
of  access  -  the  speed 
at  which  your  instructions 
can  be  transmitted,  your 
plans  implemented.  With 
a  minimum  of  time  and 
effort  on  your  part. 

To  facilitate  this 
process,  Bank  of  Montreal 
has  organized  top-flight 
management  teams  to 
work  with  our  correspon- 
dent banks  in  each  or  the  key 
regions  of  the  world.  This 
worldwide  network  ensures 
that  the  facilities  of  these  care- 
fully chosen  correspondent  banks 
are  linked  together  in  the  most 
efficient  way  to  serve  your  banking 
interests,  whatever  they  may  be, 

virtually  anywhere  in  the  world. 

Of  course,  our  cor- 
respondent banking  connections 
are  complemented  by 

Bank  of  Montreal's 
own  international 
network  of  branches, 
subsidiaries  and 
affiliates  located  in  key 
countries  around  the  world. 
So  when  you  want  to 
do  business  abroad,  come  to 
Bank  of  Montreal.  You'll  find  it 
easier  to  get  up  to  speed  when  you 
have  an  expert  who  knows 
how  to  eliminate  friction  for  you. 

Contact  your 
Bank  of  Montreal  Account 
Manager,  or  Correspondent  Banking 
Division  Officers. 

In  Canada  - 

Toronto  (416)  867-6449 

In  the  U.S.  - 

New  York  (212)  758-6300 

In  Europe  - 

London  (01)  377-1000 

In  the  Far  East  - 

Singapore  (65)  220-7266 


Fortune  5( 



jst  about  every  Fortune  500  company  at  one  time  or  another  has  discussed  its  captive 

:e  program  with  AIG.  After  all,  AIG  has  a  lot  to  say.  We  have  a  long  history  of  deep  involvement 

Dtive  clients.  We  started  long  before  a  lot  of  other  insurance  companies  entered  the  field, 

1  American  International  Company's  Havana  office  managed  the  insurance  subsidiary  of  a  major 

3any  over  35  years  ago. 

7e  have  domestic  and  international  facilities  which  match  up  with  those  of  the  Fortune  500 
unrivalled  by  other  insurers.  In  fact,  we  have  more  people  in  more  offices  in  more  countries 
the  world  than  any  other  American  insurer.  That  means  local  coordination  and  service  in 
ut  any  country  in  the  world. 

7e  have  complete  control  of  our  unified  operations  in  over  130  countries.  And  there's  a  fully- 
:aptive  management  operation  in  Bermuda  that's  one  of  the  largest  employers  on  the  island. 
IG  companies  offer  a  service  other  insurance  companies  wouldn't  dare  offer:  We  can  arrange 
apt  remittance  of  locally-collected  premiums  due  a  captive.  AIG  can  guarantee  captives  that 
.1  be  remitted  from  most  places  in  the  world  within  25  days  (except  where  government 
ons  apply).  Other  insurers  often  take  months. 

IG  routinely  deals  with  regulatory  insurance  bodies  the  world  over.  So  it's  easy  for  us  to  keep  a 
i  the  right  track  when  it  comes  to  regulatory  compliance. 

IG  Risk  Management,  Inc.,  an  AIG  subsidiary  specializing  in  captive  services,  devises  and 
mts  programs  to  meet  specific  client  captive  needs.  AIG  Risk  Management  has  complete  facilities 
irwriting,  accounting,  engineering,  and  claims  handling,  and  can  call  upon  any  AIG  facility  to 
mt  any  captive  service  necessary,  anywhere  in  the  world. 

lso,  AIG  Risk  Management  can  show  how  to  involve  captive  clients  in  third-party  business  as 
rs,  whether  the  needs  are  for  diversification  or  income. 

o  wonder  the  industrial  giants  of  the  world  have  come  to  the  AIG  Companies  for  help. 
Whether  you're  a  corporate  captive  or  an  association  looking  into  forming  a  captive,  contact 
partment  A,  70  Pine  Street,  New  York,  NY  10270.  Or  call  your  broker. 
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tan's  666  Fifth  Avenue. 

John's  older  brother  Alan,  64,  knew 
how  to  manage  office  buildings,  so  he 
continued  to  operate  a  management 
and  leasing  business.  In  addition,  he 
develops  new  office  buildings — in- 
cluding Gateway  IV,  a  1  milhon- 
squarc-foot  Chicago  property,  where 
his  partner  is  Equitable  Life. 

Guess  who  is  constructing  Gate- 
way IV?  John  Tishman.  Moreover, 
cousin  Robert,  52,  formed  a  real  estate 
development  company  with  his  son- 
in-law,  called  Iishman-Speyer.  He  is 
currently  developing  the  1  million- 
square-foot  Continental  Illinois  Plaza 
in  Manhattan.  Once  again,  fohn  is 
doing  the  construction. 

While  brother  Alan  and  cousin  Rob- 
ert were  building  equity  and  utilizing 
tax  shelters,  John  sold  the  Tishman's 
construction  and  research  operations 
to  Rockefeller  Center  Inc.  for  $7.5 

million  in  1976.  He  ran  the  business, 
earning  fat  fees  for  RCI,  with  pretax 
margins  that  hit  30%. 

Nice  margins  in  anybody's  book. 
But  Tishman  figured  he  could  gener- 
ate a  lot  more  volume,  and  he  also 
wanted  the  company  to  own  proper- 
ties as  well  as  merely  build.  He  had 
asked  Rockefeller  for  permission,  but 
his  new  owners  politely  said  no.  Oth- 
er members  of  the  Tishman  clan  ob- 
jected, too,  claiming  they  had  a  formal 
"no  compete"  agreement  with  John 
that  doesn't  expire  until  1983. 

But  John  Tishman  wasn't  deterred. 
He  and  his  associates  bought  back 
Tishman  Realty  &  Construction  from 
RCI  early  in  1980  for  $6.5  million. 

Now,  Tishman  has  three  times  as 
much  business  (some  $700  million  in 
annual  revenues),  using  the  firm's 
strong  engineering  skills.  However, 
he  is  now  starting  to  build  for  his  own 

account  with  an  $80  million  plan  for  a 
Hilton  hotel  at  the  Epcot  Center  in 
Florida.  What  took  John  so  long?  Part 
of  it  was  the  agreement  with  his  fam- 
ily. Tishman  also  discovered  he 
lacked  a  team  to  develop  financing, 
and  that  accumulating  large  parcels  of 
land — as  he  is  for  a  fine  arts  complex 
in  Dallas — takes  time  and  money. 
Tishman  is  only  now  beginning  what 
he  hopes  will  be  a  $500  million 
mixed-use  project  in  Dallas. 

To  be  project  manager  and  develop- 
er, Tishman  must  walk  a  thin  line.  He 
insists  he  won't  compete  with  clients 
in  metro  markets  like  New  York,  Chi- 
cago and  Los  Angeles.  After  all,  he 
explains,  his  projects  are  only  a  side- 
line— just  looking  for  a  tax  shelter. 

But  when  you  invest  in  real  estate, 
it's  always  a  big  gamble.  You  may  buy 
tax  benefits,  but  you  also  can  buy 
some  even  bigger  headaches.  ■ 

Frank  Carney?  made  a  fortune  building  the 
world's  biggest  pizza  chain.  He's  doing  it 
again  with  Mexican  food.  What  next? 

Pizza  to  tacos 
to  pasta 

By  John  A.  Byrne 

his  taco  salad,  Frank  Carney 
plows  a  tortilla  chip  deep  into 
some  gooey  chili  con  queso  at  the 
local  Chi-Chi's  franchise  in  Wichita. 
The  boyish-looking  44-year-old,  who, 
for  better  or  for  worse,  introduced  spe- 
cialty pizza  to  the  Midwest  in  the 
1960s  and  1970s,  is  on  his  favorite 
topic:  fast  food. 

"Today  most  of  the  money  in  food 
service  is  going  to  be  made  from  the 
post-World  War  II  babies  in  the  22-to- 
40-year  age  group,"  he  says,  munch- 
ing away.  "When  those  people  were 
14-to-20  years,  they  ate  at  McDon- 
ald's and  Burger  King.  Now  they  want 
a  drink  with  their  meal,  want  service, 
a  nice  atmosphere,  moderate  prices 
and  usually  ethnic  food.  They  are 
tired  of  meat  and  potatoes." 

On  the  other  hand,  the  current 
craze  for  mixing  pizza,  his  past  forte, 
with  Pac-Man  and  puppets  is  just  a 
passing  fad,  he  says.  He  gives  it  five  to 
seven  years.  "I  wouldn't  want  to  have 
any  land  and  buildings  with  my  name 
on  them  in  that  business.  They're  go- 
ing to  get  tremendous  competition  in 
games  because  anybody  can  do  it.  And 
the  food  is  only  an  also-ran." 

Carney  can  speak  with  authority.  In 
1958,  as  a  University  of  Wichita  fresh- 
man working  his  way  through  school, 
he  founded  Pizza  Hut  with  his  older 
brother,  Dan.  The  Carneys  opened  the 
business  in  a  tiny  brick  building  off 
Highway  54  in  Wichita.  It  was  oppo- 
site the  family's  grocery  store,  where 
Frank  had  been  making  $16  a  week. 
By  1977,  nearly  20  years  later,  it  had 
become  the  world's  largest  pizza 
chain,  with  some  3,100  outlets.  It  was 
then  that  Carney  sold  it  to  PepsiCo, 

Inc.  for  $300  million  in  a  stock  swap. 
When  Carney  joined  Pepsi's  board  lat- 
er that  year,  he  personally  had  close  to 
$16  million  of  Pepsi  stock. 

He  remembers  the  early  mistakes. 
An  effort  to  expand  in  Oklahoma  City 
in  1960  failed  because  the  chain  didn't 
have  a  standard  decor  or  style,  and  he 
had  put  the  restaurants  in  "old,  crud- 
dy  buildings."  When  he  moved  his 
pizza  east  to  New  York  in  the  late 
1960s,  it  was  a  disaster.  Easterners 
didn't  like  his  thin,  crispy  pizza.  They 
preferred  a  pizza  they  could  fold.  He 
learned  the  hard  way  that  Pizza  Hut 
would  have  to  cater  to  regional  tastes. 

A  major  crisis  occurred  in  1969 
after  Carney  went  public.  In  order  to 
gain  a  larger  operating  base,  he  bought 
out  40%  of  Pizza  Hut's  franchisees  in 
a  reorganization  that  increased  com- 
pany-owned stores  from  just  a  dozen 
to  129,  with  50  more  under  construc- 
tion. Sales  and  profits  began  to  drop  as 
managers  with  no  stake  in  the  busi- 
ness replaced  the  former  owners. 
Then,  somewhat  belatedly,  he  in- 
stalled a  financial  control  system  to 
check  overhead,  sales  and  earnings  on 
a  weekly  basis  for  each  store.  "All  of  a 
sudden,  they  knew  somebody  was 
watching,"  says  Carney.  "Six  weeks 
later,  our  controllable  costs  dropped 
eight  points  and  our  profit  was  back." 

Flush  with  success,  Carney  persuad- 
ed PepsiCo  to  acquire  $104  million 
(sales)  Taco  Bell,  the  nation's  largest 
Mexican  fast-food  chain,  in  1978,  only 
a  year  after  the  Pizza  Hut  acquisition. 
While  Carney  was  preoccupied  with 
Taco  Bell,  however,  a  new  crop  of 
regional  pizza  houses  started  eating 
away  at  Pizza  Hut's  market  share. 
Carney    tried    adding  sandwiches. 


FORBES,  OCTOBER  11,  1982 

low  you  can  shrink  a  $600  car  repair  down  to  $25 

Everywhere  you  look  these  days,  it's  charges,  except  a  small  $25  deductible 
$600  for  a  transmission  inh  hprp  $400      each  time  von  hrine  vour  car  in.  No 

Everywhere  you  look  these  days,  it's 
$600  for  a  transmission  job  here,  $400 
for  engine  repairs  there. 

It's  gotten  to  the  point  where  even 
the  remote  possibility  of  major  repairs 
is  enough  to  worry  anyone. 
Until  now. 

Because  now  you  can  cut  those 
worries  down  to  a  more  manageable 
$25.  And  keep  them  that  way  for  up  to 
five  full  years. 

Introducing  the  Ford  Extended 
Service  Plan — for  purchasers  of  Ford 
or  Lincoln-Mercury  cars  or  light  trucks. 

Here's  how  it  protects  you. 

The  Extended  Service  Plan  covers 
thousands  of  parts,  including  major 
repairs.  And  promises  no  parts  or  labor 

charges,  except  a  small  $25  deductible 
each  time  you  bring  your  car  in.  No 
matter  how  many  different  covered 
parts  need  to  be  fixed. 

Which  means  you  can  go  to  any  one 
of  6,300  Ford  or  Lincoln- Mercury 
Dealers  across  the  U.S.  and  Canada, 
and  the  most  you'll  pay  is  $25  for  any 
covered  repairs. 

Plus  there's  much  more.  With  plans 
ranging  up  to  5  years/60,000  miles  of 
maximum  protection.  See  your  Dealer 
for  all  the  details  on  how  to  shrink  car 
repair  worries  down  to  size. 

Ask  for  the  Extended  Service  Plan  by 
name.  It's  the  only  one  backed  by  the 
Ford  Motor  Company. 
Get  it  together — buckle  up. 

Ford  Extended  Service  Plan 


They  didn't  make  it  past  the  testing 
stage.  Then  he  tried  adding  taeo  pizza.  I 
That  enjoyed  only  a  short-lived  suc- 
eess  and  was  shelved.  Then,  two  years 
later,  he  finally  managed  to  turn  Pizza 
Hut  around  with  the  introduetion  of  j 
thick,  Chicago-style  pan  pizza,  which 
now  accounts  for  55%  of  Pizza  Hut's 
sales.  Despite  the  turnaround,  Pepsi 
management  hrought  in  Donald 
Smith  from  Burger  King  to  head  the 
food  division,  and  Carney  resigned. 

"I  needed  to  cut  the  cord,"  says 
Carney.  "The  hardest  part  was  telling 
the  employees.  They  were  shocked.  I 
had  a  lot  of  heart  out  there,  a  lot  of  my 
soul."  So  Carney  gave  up  his 
$150,000-a-year  job  at  PepsiCo  in 
1980,  after  generating  $1  billion  in 
sales  for  its  food  service  division.  "I 
knew  that  I  could  make  more  money 
outside  than  inside,  anyway,"  he  says. 
"If  I  stayed,  I  would  have  been  making 
$250,000  to  $300,000  a  year  at  Pepsi. 

"I  could  have  cashed  in  my 
chips,  put  them  in  a  money 
market  fund  and  just  sat 
back.  But  when  you  stop 
growing  you  start  dying." 

But  that's  peanuts  compared  to  what 
you  can  do  as  an  entrepreneur  in  the 
food  service  business."  Not  that  Car- 
ney was  about  to  go  on  welfare.  His 
Pepsi  stock  alone  was  still  worth 
about  $15  million.  "I  could  have 
cashed  in  my  chips,  put  them  in  a 
money  market  fund  and  never  lifted  a 
finger,"  says  Carney,  "but  I  would 
probably  die  inside,  because  when 
you  stop  growing  as  an  individual  you 
start  dying." 

So  he  applied  for  a  franchise  with 
Chi-Chi's,  Inc.,  a  Louisville,  Ky.- 
based  chain  of  full-service,  family  res- 
taurants that  serve  Sonoran-style 
Mexican  food  with  Margaritas  and 
Mexican  beers.  Chi-Chi's  manage- 
ment was  astounded  that  he  was  in- 
terested. The  three:year-old  company 
didn't  want  to  have  to  worry  about 
some  hotshot  from  the  pizza  business 
eventually  trying  to  take  them  over. 

But  Carney  was  convincing.  "I  said 
to  them  that  the  people  who  made  the 
most  money  from  Pizza  Hut  were  the 
franchisees  who  sold  their  stores  to 
us,  left  and  got  more  territory,  built 
up  another  group  of  stores,  sold  them 
again  and  got  still  more  territory  to  do 
it  again,"  says  Carney.  "I  said  I  want 
to  be  one  of  those  guys.  And  I  told 
them  that  if,  in  the  process,  you  want 
to  acquire  whatever  it  is  I'm  doing, 
it's  for  sale  anytime." 

Along  with  several  other  investors, 

FORBES,  OCTOBER  11,  1982 

Oft  ■  a 

'H  E 

B  ' 





I''  3"'  r 



A  YEAR " 


OMNI  Magazine  recognizes  that  science  is  not  just 
the  province  of  scientists,  but  of  all  thinking  men  and 
women.  That's  why  a  man  like  Edgar  Allan  Poe,  who 
was  not  a  scientist  but  the  father  of  the  modern 

detective  and  horror  story,  could  conceive  of  the 
sophisticated  computers  that  today  perform 
complex  calculations  beyond  the  power  of  the 
technicians  who  create  them.  Poe  was  a  man  of 
vision  and  imagination.  In  his  day,  they  called  the 
idea  of  a  mechanical  genius  wild  speculation, 
fiction.  Today,  we  would  call  it  prophetic. 

Which  is  why  OMNI  feels  that  science  fiction  is  as 
much  a  part  of  science  as  are  laboratories  and 
textbooks . . .  and  why  every  month,  more  than  5.4 
million  OMNI  readers  (MR1 1982)  have  come  to  see 
the  full  scope  of  today's  science-and  tomorrow's. 
Join  us  on  the  New  Frontier.  OMNI  Magazine.  It  will 
change  the  face  of  science  journalism  forever. 



Super  80  soars  to  new  heights 
when  compared  with  the  737 
in  new  passenger  survey. 

Knowledgeable  flyers  choose  Super  80 
twin-jet  eight-to-one  over  competition. 

The  McDonnell  Douglas  Super  80  abso- 
lutely flew  away  from  the  two-engine  737  when 
passengers  on  the  two  planes  were  asked  to 
pick  a  favorite. 

In  responses  from  more  than  1,800 
passengers,  the  Super  80  was  rated  "very 
appealing"  more  than  twice  as  often  as  the 
737.  Knowledgeable  flyers  expressing 
preference—passengers  who  know  what 
makes  their  trips  more  pleasant— picked 
the  Super  80  over  the  737  nearly  eight 
times  out  oi  m-w. 

The  survey  was  conducted  on  board 
737s  and  Super  80s  flown  by  the  same  airline, 
comparing  the  same  routes,  the  same  days  of 

the  week,  the  same  fares  and  even  the  same 
interior  color  scheme. The  new  Super  80  was 
a  decisive  choice— a  winner  on  every  point 
of  passenger  comparison.  It  was  chosen  for 
cabin  quiet;  quality  of  ride;  leg,  arm  and 
shoulder  room;  carry-on  luggage  facilities; 
and  seat-to-aisle  access. 

The  Super  80  was  a  three-to-one  choice 
of  passengers  surveyed  in  an  earlier  compar 
son  with  727  tri-jets. 

For  more  details  of  these  surveys,  write: 
Travel  Industry  Affairs,  McDonnell  Douglas, 
3855  Lakewood  Blvd.,  Long  Beach,  CA  90841 
And  for  greater  comfort  when  you  fly— wider 
seats  and  aisle  and  an  exceptionally  quiet 
ride— choose  the  Super  80. The  one  most 
passengers  prefer. 


Survey  data  collected  and  processed 
by  independent  researchers. 

Carney  got  the  mid-Atlantic  franchise 
from  Chi-Chi's  in  1980.  All  told,  it 
costs  about  $1.7  million  to  open  a 
single  Chi-Chi's  restaurant.  That's 
about  what  it  costs  to  open  seven  Piz- 
za Huts.  But  the  standard  2,500- 
square-foot  Pizza  Hut  racks  up  sales 
of  only  $300,000  a  year,  compared 
with  the  average  $3  million  for  each 
10,000-square-foot  Carney-owned 
Chi-Chi's — nearly  10  times  the  profit 
for  only  7  times  the  cost. 

Even  Pizza  Time  Theatre,  Inc.,  the 
pioneer  in  the  pizza  and  puppets 
game,  can't  match  that  performance. 
It  costs  roughly  $  1 .6  million  to  open  a 
Pizza  Time  outlet  with  entertaining 
robots  and  video  games.  Yet  the  units 
average  only  about  $1.2  million  in 
revenues  a  year.  That's  less  than  half 
the  Chi-Chi's  $2.5  million  average 
and  nearly  a  third  of  the  $3  million 
that  Carney  units  take  in. 

In  just  two  years,  Carney's  fran- 
chise has  gone  from  nothing  to  $26 
million  in  sales,  with  eight  restau- 
rants and  three  more  under  construc- 
tion. You  guessed  it.  Chi-Chi's  is 
buying  Carney  and  his  partners  out. 
The  deal  will  provide  Carney  with 
396,000  Chi-Chi's  shares,  worth 
about  $7.8  million,  plus  a  spot  on  the 
company's  board.  Carney's  cash  in- 

vestment? A  mere  $650,000  in  1980. 

"It  looks  real  easy,"  says  Carney, 
"but  there  was  a  lot  of  risk.  I  had  my 
name  on  $10  million  in  notes.  So  it 
was  just  a  proper  reward  for  the  risk." 

Not  all  of  his  investments  have 
turned  out  so  well.  In  1980  he  bought 
into  a  Volvo  and  Datsun  dealership  in 
Kansas  City.  They  haven't  turned  a 
profit  for  two  years. 

The  jury  is  still  out  on  some  of  his 
other  investments:  a  14%  stake  in 
Classic  Corp.  of  Maryland,  a  $12  mil- 
lion (sales)  waterbed  company;  a  14% 
stake  in  Scandia  Down  Corp.,  a  chain 
of  retail  shops  selling  high-priced 
comforters;  a  45%  stake  in  Carbo  Co., 
which  leases  TVs  and  stereos  through 
six  stores  in  the  Southeast.  He's  on 
the  board  of  each  of  these  companies. 

Carney  is  also  a  professional  sports 
car  racer  on  the  national  circuit.  His 
2.5  liter  Datsun  280ZX  makes  it  to 
about  1 5  rallies  a  year.  Last  year  he  was 
ranked  sixth  in  the  International  Mo- 
tor Sports  Association.  He  has  totaled 
his  Datsun  on  eight  separate  occasions 
and  walked  away  unscathed  each 
time.  "I  spent  my  first  seven  years 
cracking  up,"  he  laughs.  "I'll  never  be  a 
great  driver,  but  I'll  have  a  hell  of  a  lot 
of  fun  because  the  thrill  is  in  the  com- 
petition." But  Carney's  heart  is  in  the 

food  business.  He  hopes  to.  buy  into 
another  Chi-Chi's  franchise,  build  it 
up  and  sell  it  back.  He's  also  backing  a 
new  concept  that  fits  into  his  ethnic- 
food-for-famihes  theory  called  Pastifi- 
cio  (the  Italian  word  for  pasta  factory), 
which  will  specialize  in  Northern  Ital- 
ian cuisine.  The  gimmick:  Each  outlet 
will  make  its  own  pasta  within  view  of 
the  customers.  The  first  test  unit  will 
open  in  Kansas  City  in  November. 
Carney  figures  it  will  cost  $450,000  to 
open  and  gross  about  $650,000  a  year 
in  revenues. 

What  next?  "As  the  population  con- 
tinues to  age  over  the  next  15  years," 
says  Carney,  "quality  cafeterias 
should  make  a  comeback.  Where  else 
can  you  go  for  reasonably  mild  food  at 
competitive  prices?" 

But  don't  think  that  Carney  has  giv- 
en up  on  Pizza  Hut  pizza.  He  took  his 
wife  and  family  there  for  dinner  just 
the  other  week.  "That's  one  thing  I 
learned  at  Pepsi,"  he  says.  "They  real- 
ly believe  that  if  this  is  what  you  do, 
then  that  better  be  what  you  are.  I 
drink  Pepsi.  I  eat  Fritos.  I  am  so  loyal  I 
buy  Wilson  Sporting  equipment.  Any- 
body who  brings  a  Coke  into  our 
house  is  persona  non  grata."  No  won- 
der Carney  spends  lots  of  time  in  the 
local  Chi-Chi's  franchise.  ■ 

Brctnk  Camey,  cofounder  of  Pizza  I  hit 

"I'll  never  be  a  great  driver,  but  I'll  have  a  lot  of  fun  because  the  thrill  is  in  the  competition. 

FORBES,  OCTOBER  11,  1982 


focus  on 

Building  on  a  Strong  Base 

Rising  above  a  troubled  Caribbean  Sea,  Barbados  has 
created  a  strong  base  on  which  to  build  its  future. 
The  phones  work,  the  roads  work,  the  people  work. 
The  island  nation  has  its  act  together.  .  .and  it  may 
be  the  class  act  of  the  Caribbean. 

Dominican  Republic 


When  Air  Force  One  touched  down  on  the  runway 
at  Grantley  Adams  International  Airport  April  8, 1982 
bringing  President  Ronald  Reagan,  his  wife  Nancy  and 
some  300  staff,  security  and  press  to  Barbados  for  a 
"working  vacation,"  it  put  into  an  airport  whose 
crowd-filled,  glass  and  stone  terminals  belie  their  calm 
Caribbean  setting.  The  IL-mile  drive  from  airport  to 
capital  took  some  of  the  group  over  a  smooth  asphalt 
highway  that  cuts  through  cane  fields  past  hotels  and 
guest  houses.  In  minutes  they  plunged  into  mid- 
Bridgetown — port,  commercial  center  and  base  for 
banks,  insurance  companies,  embassies  and  other 
agencies  that  serve  the  Eastern  Caribbean. 

It's  not  by  chance  that  Barbados  projects  an  air 
of  business  and  a  reputation  for  reliability  throughout 
the  Caribbean.  Prime  Minister  Tom  Adams  and  his 

Designed  and  written  by  Mary  Patterson  Ramond 

A  Furcu/P amend  Product 

Puerto  Rico 

d  Antigua 

\  \Guadeloupe 


St  Lucia 



Trinidad  / 

\       BA  Forbes  Special  Advertising  Section 

arbados  Labour  Party,  just  as  the  opposition  party 
jfore,  have  created  a  strong  base  on  which  this 
16-square-mile  country  of  250,500  people  can  build  a 
cure  future.  Barbados's  traditions  of  political  stability, 
?mocratic  government  and  private  enterprise  help. 

".  .  .Democratic  systems  and  democratic  principles 
e  established  so  clearly  in  this  country  that  continuity 
f  government  policies)  is  not  really  in  doubt.  '' 

Branford  Taitt,  an  Opposition  political  leader 

Settled  by  Britain  in  1627,  Barbados  remained 
"itish  until  its  independence  in  1966.  Its  Parliament, 
\e  of  the  three  oldest  of  Western  democracies,  was 
■st  elected  in  1639.  From  an  agricultural  economy, 
ised  mainly  on  sugar,  and  the  occasional  tourist, 
irbados  has  diversified  the  sources  of  its  income  since 
e  1950's  to  tourism,  light  manufacturing  and,  more 
cently,  to  financial  and  business  services.  Today  sugar 
:counts  for  only  4%  of  the  gross  domestic  product 
hile  manufacturing,  tourism  and  the  service  industries 
ch  adds  between  11%  and  12%. 

If  Barbados  were  looked  at  as  a  business,  it  would 
in  high  marks  for  sound,  far-sighted  management, 
overnment  has  drawn  up  and  followed  development 
ans,  set  national  goals,  invested  capital  to  develop 
id  exploit  its  resources.  In  short,  it  has  built  and 
aintains  a  modern,  functioning  nation. 

"Barbados  doesn't  have  great  land  mass  or  reserves 
natural  resources.  Our  strength  lies  in  our  people.  " 
Rawle  Chase,  General  Manager, 
Industrial  Development  Corporation 

irbados  has  created  a  first-class  transportation 
twork.  In  the  last  decade  government  has  rebuilt 
international  airport,  its  deepwater  harbor  and 
>ntainer  port.  It  is  spending  $9  million  on  roads  to 
lieve  Bridgetown's  modern,  ulcer-making  traffic  jams 
id  to  open  land  in  the  interior  to  industry. 

Telephone,  telegraph  and  telex  services  operate 
lickly,  smoothly.  Direct  dial  to  North  America,  the 
K.  and  other  international  points  can  be  as  effortless 
dialing  Chicago  from  New  York.  Unflappable  Bajans 
)  longer  notice  the  West  Indian  businessman  who  flies 
.  spends  his  day  putting  through  overseas  calls,  then 
s  back  down  island  that  evening  because  his  own 
tones  don't  work. 

Barbados  Light  &  Power  plans  to  allocate  $65  million, 
th  help  from  the  World  Bank,  toward  ending  outages 

and  increasing  its  generation  and  distribution. 

Unlike  many  of  its  neighbors,  Barbados  produces 
oil,  nearly  one-third  its  needs,  and  natural  gas.  But  the 
country  is  seeking  alternate  sources  of  energy  and  is 
experimenting  with  wind,  solar  and  wave  energy. 

Barbados  has  built  a  school  system,  both  public 
and  private,  primary  and  secondary,  unmatched  in  the 
Caribbean.  Technical  schools,  a  community  college  and 
a  branch  of  the  University  of  the  West  Indies  offer 
advanced  training.  Moreover,  government  is  currently 
investing  $15  million  in  new  buildings  and  teacher  and 
management  training.  The  Barbados  government  clearly 
sees  the  nation's  greatest  resource  as  its  people  and 
intends  to  develop  and  build  on  that  strength. 

Doing  Business  in  Barbados:  One  Manager's  View 

"We  have  our  problems  but  generally,  the  people  make 
it  enjoyable.  .  .  make  it  possible  to  do  business  here." 

Gerry  Swisher,  Corcom  plant  manager 

In  1978  Corcom,  an  Illinois  electronics 
manufacturer,  opened  Corcom  West  Indies  Ltd.  in 
Barbados  to  make  electronic  coils  and  filters  for 
shipping  back  to  the  U.S.  With  its  payroll  of  420, 
Corcom  W.I.  ranks  second  among  Barbados's  foreign- 
owned  electronics  manufacturers. 

Why  Barbados?  What  brought  the  Illinois 
company,  that  had  one  profitable  subsidiary  in  Mexico, 
to  Barbados?  Corcom  W.I.'s  plant  manager  American 
Gerry  Swisher  doesn't  waffle:  low  labor  costs  and 
generous  tax  concessions. 

When  Corcom's  management  decided  on  a  second 
offshore  location,  a  search  team  began  to  look  at 
countries  in  the  Caribbean  and  in  Latin  America. 
Narrowing  the  choice  to  Mexico  versus  Barbados,  the 
team  turned  to  Swisher  to  do  a  financial  analysis. 
He  found  that  Barbados's  low  labor  costs  more  than 
offset  projected  transportation  prices.  The  risks,  Swisher 
recalls,  lay  in  not  knowing  local  levels  of  productivity 
and  possible  problems  in  shipping.  The  labor  cost 
differential  won.  He  proposed  Barbados  and  in 
September  1978  opened  the  new  plant.  He's  run  it  since. 

With  four  years  to  look  back  on,  Swisher  today  is 
a  persuasive  booster  of  doing  business  in  Barbados: 
•  "The  people  are  smart.  They  tend  to  pick  up  ideas 
and  expand  on  them.  Our  management  staff  is 
strong.  .  Everyone  from  our  organization  in  the 
States  comments  that  the  staff  is  professional.  They 
have  well  laid  out  plans,  have  systems  in  place.  .  ." 

"We  have  420  employees  here  and  all  but  two  are 
Barbadian.  Long  term,  we'd  like  to  have  a  Barbadian 
run  the  facility.  .  .We're  at  a  point  where  we  can  talk 
about  that .  .  .  We  have  to  commit  to  a  program  to 
make  that  happen.  .  .Our  people  get  around.  Our 
managers  take  AMA  courses  in  the  States  or  else- 
where. For  instance,  one  of  my  personnel  people  is 
taking  a  special  labor  course  in  England.  Their  labor 
laws  are  more  relevant  to  personnel  here  than  ours." 

'We  don't  have  turnover  problems.  So  far  this  year 
our  figure  is  2.2%  among  operators.  That's  good. 
Attendance  for  the  year  is  about  95% .  Those  numbers 
are  favorable.  They're  competitive  with  the  States. 
Productivity  is  very  good.  We've  spent  time  and 
money  training  but  after  that  productivity  is  high. 

'There's  a  lot  of  union  activity  now  from  sources 
different  than  in  the  past.  Many  people,  including 

ourselves,  are  concerned.  There're  new  people  and 
new  unions  on  the  scene.  .  .We'll  see.  Traditionally, 
Barbados  has  had  well-organized  unions  with 
basically  responsible  leadership.  They  haven't  been 
that  hard  to  deal  with." 

'Living  here  varies.  Quite  honestly,  some  people  havt 
problems.  A  woman  coming  here  with  her  husband 
can't  work.  But  there're  a  thousand  activities  she  car 
get  involved  in .  .  .  Some  people  adapt  beautifully.  Wi 
get  off  the  island  from  time  to  time.  We've  travelled 
to  most  of  the  other  islands.  Each  is  so  different. 
Barbados  is  much  more  advanced  than  other  coun- 
tries as  far  as  its  education,  its  infrastructure, 
its  transportation. 

The  people  are  friendly.  They're  genuinely  nice 
people  to  deal  with.  .  .It's  a  pleasure  to  come  to 
work  here." 




Sales  &  Service  Contact 

6285  N  W  18th  Si 
Bldo.  2144 
P  O.  Box  524185 
Miami.  Fla  33152 
Tel:  13051  871  2680 

to  2684 
or    13061871  2186 

to  2188 
Telex  6811583 


Bm.ding  No.  7 
Rada,  Road 
JFK  Int'l  An  port 
Jamaica.  MY  1  1430 
Tel:  (2121  056^1732 
or:  4736 
Telex  421987 


Host  Int'l  Hotel 
18700  Kennedy  Blvd 
Houston  Int'l  Airport 
Houston.  Texas  77205 
Tel:  (7131  443  7736  to 

Telex   790  287 

Caribbean  Air  Ca.-go  Company  Ltd. 

Wholly  owned  by  the 
Governments  of  Bai  .idos 
and  Trinidad  &  Tobaqo 




for  projects  and  enterprises  in 


including  Financial  Assistance  for 

We  make  medium  and  long-term  finance  available  for  up 
to  fifteen  years.  Several  Barbadians  have  benefited  from  our 
loans  in  order  to  start  new  businesses  or  expand  existing  ones. 
These  projects  have,  in  turn,  contributed  to  the  Nation's 
economic  development  mainly  by  way  of  employment  gen- 
eration and  foreign  exchange  earnings. 


National  Petroleum  Corp.,  Wildey,  St.  Michael,  BARBADOS. 
Telephone:  (809)  42  60512  •  Cable  BARDEBAN. 

At  the  center  of  the  government's  strategy  for 
/ersifying  the  Barbadian  economy  are  the  Industrial 
rvelopment  Corporation  and  the  Central  Bank  of 

he  IDC  has  done  a  good  job  at  diversifying  (our 
:onomy) .  .  .in  manufacturing,  in  attracting  overseas 
westors  here  and  in  educating  our  people.  Today,  as 
ur  standards  of  education  have  risen,  people  want 
'eater  challenges  in  their  work. " 

John  Stanley  Goddard,  Barbadian  businessman 

When  the  Barbados  government  formed  its 
dustrial  Development  Corporation  25  years  ago,  it 
arged  the  IDC  primarily  with  creating  jobs.  That  the 
C  has  done  largely  by  promoting  the  availability  of 

cheap,  literate  labor,  of  corporate  tax  holidays  and 
tariff  exemptions  to  foreign  investors  who  bring  capital, 
technology  and  markets.  "We  have  to  a  large  extent," 
says  IDC  general  manager  Rawle  Chase,  "achieved  our 
desires  there."  In  its  most  recent  four-year  plan,  just 
ended,  the  IDC  had  targeted  1,200  new  jobs  a  year. 
Even  in  the  face  of  world  recession,  Chase  estimates, 
IDC  averaged  that. 

Today,  in  what  Chase  and  his  board  chairman  Fred 
Gollop  describe  as  a  dramatic  shift  in  direction,  the  IDC 
is  going  after  different  kinds  of  industry.  Looking  for 
high  tech  industries  that  use  higher  skills  and  offer 
correspondingly  higher  pay,  it  will  seek  manufacturers 
who  produce  for  Barbados  and  for  the  Caribbean 
Common  Market  (CARICOM),  a  market  of  roughly 
five  million,  rather  than  the  export  assembly  industries 
which  it  sought  in  the  past. 

Fast  Facts  of  Barbados  from 

Area:  166  square  miles 
Capital:  Bridgetown 

Government:  Parliamentary  democracy,  member  of 

the  British  Commonwealth 
Language:  English 
Population  (1981  est.):  250,500 

Labor  force  (1981  est.):  144,300;  unemployment:  10.8  per  cent 
Monetary  unit:  Barbadian  dollar:  US$1  =  B$2 
Gross  Domestic  Product  (1981):  US$819  million 
GDP  per  capita  (1981):  US$3,270 
Average  monthly  wage  (1980): 

industrial  department  head— US$500 -$1200 

secretary  -US$2  75-500 

electronics  assembly  operator— US$155-$215. 
Index  of  industrial  production  (1971  =  100):  151.6 
Average  prime  rate  (1981)rl3  per  cent 
Retail  price  index  (1980  =  100):  U8.6 
Total  exports  (1981):  $194.5  million;  to  U.S.:  $71  million 
Total  imports  (1981):  $571  million;  from  U.S.:  $198  million 
Tourism  (1981):  total  visitors,  excluding  cruise  ship —352, 600; 

visitors  from  U.S.  — 74,500.  Earnings  — US$263.5  million 
(Sources:  Ministry  of  Finance  and  Planning;  Central  Bank  of  Barbados) 

"We  have  420  employees  here  and  all  but  two  are 
Barbadian.  Long  term,  we'd  like  to  have  a  Barbadian 
run  the  facility.  .  .We're  at  a  point  where  we  can  talk 
about  that.  .  .We  have  to  commit  to  a  program  to 
make  that  happen.  .  .Our  people  get  around.  Our 
managers  take  AM  A  courses  in  the  States  or  else- 
where. For  instance,  one  of  my  personnel  people  is 
taking  a  special  labor  course  in  England.  Their  labor 
laws  are  more  relevant  to  personnel  here  than  ours." 
•  "We  don't  have  turnover  problems.  So  far  this  year 
our  figure  is  2.2%  among  operators.  That's  good. 
Attendance  for  the  year  is  about  95% .  Those  numbers 
are  favorable.  They're  competitive  with  the  States. 
Productivity  is  very  good.  We've  spent  time  and 
money  training  but  after  that  productivity  is  high. 

"There's  a  lot  of  union  activity  now  from  sources 
different  than  in  the  past.  Many  people,  including 

ourselves,  are  concerned.  There're  new  people  and 
new  unions  on  the  scene.  .  .We'll  see.  Traditionally, 
Barbados  has  had  well- organized  unions  with 
basically  responsible  leadership.  They  haven't  been 
that  hard  to  deal  with." 

"Living  here  varies.  Quite  honestly,  some  people  hav< 
problems.  A  woman  coming  here  with  her  husband 
can't  work.  But  there're  a  thousand  activities  she  car 
get  involved  in.  .  Some  people  adapt  beautifully.  W 
get  off  the  island  from  time  to  time.  We've  travelled 
to  most  of  the  other  islands.  Each  is  so  different. 
Barbados  is  much  more  advanced  than  other  coun- 
tries as  far  as  its  education,  its  infrastructure, 
its  transportation. 

The  people  are  friendly.  They're  genuinely  nice 
people  to  deal  with.  .  .It's  a  pleasure  to  come  to 
work  here." 



Sales  &  Service  Contact 


6286  NW  lStti  St 
Bldg  2144 
P.O.  Box  624185 
Miami,  Fla.  33152 
Tel:  (3051  871  2680 

to  2684 
or     (3051  871  2186 

to  2188 
Telex:  6811583 


Building  No  7 
Rada.  Road 
JFK  Int'l  Airport 
Jamaica.  NY  1 1430 
Tel:  (2121  656-4732 
or:  4  736 

Cable.  CAR  ICARGO 
Telex:  421987 


Host  Int'l  Hotel 
18700  Kennedy  Blvd 
Houston  Int'l  Airport 
Houston.  Texas  77205 
Tel  (7131  443-7736  to 

Telex.  790287 

Caribbean  Air  Cargo  Company  Ltd. 

Wholly  owned  by  the 
Governments  of  Barbados 
and  Trinidad  &  Tobago 





for  projects  and  enterprises  in 


including  Financial  Assistance  for 

We  make  medium  and  long-term  finance  available  for  up 
to  fifteen  years.  Several  Barbadians  have  benefited  from  our 
loans  in  order  to  start  new  businesses  or  expand  existing  ones. 
These  projects  have,  in  turn,  contributed  to  the  Nation's 
economic  development  mainly  by  way  of  employment  gen- 
eration and  foreign  exchange  earnings. 


National  Petroleum  Corp.,  Wildey,  St.  Michael,  BARBADOS. 
Telephone:  (809)42  60512  •  Cable  BARDEBAN. 

At  the  center  of  the  government's  strategy  for 
versifying  the  Barbadian  economy  are  the  Industrial 
•velopment  Corporation  and  the  Central  Bank  of 

he  IDC  has  done  a  good  job  at  diversifying  (our 
■onomy) .  .  .in  manufacturing,  in  attracting  overseas 
vestors  here  and  in  educating  our  people.  Today,  as 
xr  standards  of  education  have  risen,  people  want 
■eater  challenges  in  their  work. " 

John  Stanley  Goddard,  Barbadian  businessman 

When  the  Barbados  government  formed  its 
iustrial  Development  Corporation  25  years  ago,  it 
arged  the  IDC  primarily  with  creating  jobs.  That  the 
C  has  done  largely  by  promoting  the  availability  of 

cheap,  literate  labor,  of  corporate  tax  holidays  and 
tariff  exemptions  to  foreign  investors  who  bring  capital, 
technology  and  markets.  "We  have  to  a  large  extent," 
says  IDC  general  manager  Rawle  Chase,  "achieved  our 
desires  there."  In  its  most  recent  four-year  plan,  just 
ended,  the  IDC  had  targeted  1,200  new  jobs  a  year. 
Even  in  the  face  of  world  recession,  Chase  estimates, 
IDC  averaged  that. 

Today,  in  what  Chase  and  his  board  chairman  Fred 
Gollop  describe  as  a  dramatic  shift  in  direction,  the  IDC 
is  going  after  different  kinds  of  industry.  Looking  for 
high  tech  industries  that  use  higher  skills  and  offer 
correspondingly  higher  pay,  it  will  seek  manufacturers 
who  produce  for  Barbados  and  for  the  Caribbean 
Common  Market  (CARICOM),  a  market  of  roughly 
five  million,  rather  than  the  export  assembly  industries 
which  it  sought  in  the  past. 

Fast  Facts  of  Barbados  from 

Area:  166  square  miles 
Capital:  Bridgetown 

Government:  Parliamentary  democracy,  member  of 

the  British  Commonwealth 
Language:  English 
Population  (1981  est.):  250,500 

Labor  force  (1981  est.):  144,300;  unemployment:  10.8  per  cent 
Monetary  unit:  Barbadian  dollar:  US$1  =  B$2 
Gross  Domestic  Product  (1981):  US$819  million 
GDP  per  capita  (1981):  US$3,270 
Average  monthly  wage  (1980): 

industrial  department  head -US$500 -$1200 

secretary  -  US$2  75-500 

electronics  assembly  operator— US$155-$215. 
Index  of  industrial  production  (1971  =  100):  151.6 
Average  prime  rate  (1981)rl3  per  cent 
Retail  price  index  (1980  =  100):  118.6 
Total  exports  (1981):  $194.5  million;  to  U.S.:  $71  million 
Total  imports  (1981):  $571  million;  from  U.S.:  $198  million 
Tourism  (1981):  total  visitors,  excluding  cruise  ship— 352, 600; 

visitors  from  U.S.  — 74,500.  Earnings  —  US$263.5  million 
(Sources:  Ministry  of  Finance  and  Planning,  Central  Bank  of  Barbados) 

IDC  wants  industries  that  fill  CARICOM's  needs 
and  thereby  reduce  costly  imports.  Joint  ventures  that 
combine  local  knowledge  and  capital  with  foreign 
technology  and  capital  complete  the  plan.  "We're  going 
to  encourage  local  Barbadian  and  regional  Caribbean 
investors  to  become  involved,"  says  Gollop.  "We  still 
need  to  maintain  and  develop  foreign  enterprises  for 
export,"  Chase  adds,  "but  we  must  get  more  into 
developing  local  entrepreneurs,  local  operation."  For 
those  joint  venture  partners  IDC  is  looking  to  the  U.S. 
and  Canada,  to  Europe  and  to  Japan. 

"A  central  bank  gives  a  government  the  opportunity  to 
do  good  or  bad.  .  .  if  used  wisely  it  is  an  ingenious 
invention. "  Dr.  Courtney  Blackman,  Governor 

Central  Bank  of  Barbados 

One  of  the  fringe  benefits 
of  industry  in  Barbados 
is  Barbados 


■  Barbados  mdustr,ai  \  0f  course  Barbados  is  pro- business. 

■  Development  Corp   \    Of  course  we  offer  excellent  tax  and  duty  breaks. 
1  N^wSYork0nNY^oT7  \  0ur  workforce  is  literate  and  available,  blue  collar  and 
1(212)867-6420       \  white  collar  both. 
|  piease  send  information  ^  Our  government  is  stable. 

I  about  Barbados 

|  f  <Tle 

J  Company 
£   Nature  ol  Business 
^  Address 
^  telephone 


^  But  there's  something  more. 


*  It's  a  marvelous  place  to  live.  And  live  well  Very 
\  reasonably. 
V.  Housing  is  more  than  adequate.  There  is 

household  help  available.  Food  is  good  and 
reasonable.  And  there's  plenty  to  do 
when  the  workday  is  done. 

Ask  the  people  who  work  tor 
TRW,  Becton-Dickmson, 




%   •••""»  

Intel,  Playtex  and  New 

*  American  Library  why 
£  they  like  working  in 

*  Barbados. 
J    You'll  hear  some  very 

f  nice  answers.  We'll  give 
S  you  some  more  reasons  too. 
f     Just  fill  in  the  coupon  and 
S    return  it  to  us. 

F  - 10-25  a* 

The  Barbados  Central  Bank  in  its  ten-year  life  has 
grown  into  far  more  than  an  agency  to  govern  the 
nation's  money  supply.  Economist  Courtney  Blackman 
is  using  the  Bank  to  educate  Barbadians  in  regional  anc 
international  economics  and,  with  the  Bank's  Sir 
Winston  Scott  Lectures,  to  make  it  a  forum  of  ideas 
that  touch  directly  on  the  nation's  future.  And  it  is 
government's  instrument  for  developing  a  financial 
services  industry — the  twin  to  manufacturing  in  the 
grand  scheme  to  diversify. 

With  low  tax  treatment  as  its  lure,  the  Central  Ban 
is  looking  for  offshore  financial  services — banking, 
captive  insurance  companies,  international  business 
companies  and  shipping  registration — to  operate  from 
within  Barbados.  Barbados  became  a  low-tax  haven 
(as  opposed  to  a  no-tax  haven,  Central  Bank  General  Ma 
ager  Teddy  Griffith  emphasizes)  iri 
1965  when  Parliament  passed  an 
International  Business  Companies 
Act.  Today  some  90  companies 
registered  under  the  IBC  Act  pay 
only  2.5%  corporate  income  tax 
(instead  of  the  normal  45%)  but 
may  not  trade  in  Barbados  or  in 
CARICOM  countries. 

In  1979  Parliament  enacted  ar 
offshore  banking  law  that  by  Janu 
ary  1982  had  attracted  Barclays, 
Royal  of  Canada  and  the  Barbado 
International  Bank  and  Trust.  In  il 
first  full  year  of  operation  the 
country's  offshore  banking  industi 
had  amassed  assets  of  $150  million 
mainly  from  the  Eurocurrency 
market.  While  the  Central  Bank 
monitors  the  industry,  strict  laws  < 
confidentiality  limit  it. 

A  shipping  registration  act,  oi 
the  books  but  not  yet  on  line,  will 
permit  Barbados  to  offer  shippers 
a  flag  of  convenience  much  as 
Panama  and  Liberia. 

The  captive  insurance  industr 
will  complete  Barbado's  financial 
services.  As  Griffith  says,  "By  yea 
end  we  expect  to  be  in  an  aggressr 
position  with  all  our  legal  frame- 
work in  place.  We'll  be  able  to  tall 
to  promote,  a  full  package  of  all 
financial  services." 

'Companies'  are  but  bread  sharers,  and 
rivals'  are  mere  river  dwellers,  reports 
iur  authority  on  word  derivations. 

Why  a  merger 
is  like  a  duck 

By  Steele  Commager 

T|he  business  world  seems  to  be 
inhabited  exclusively  by  verbal 
behemoths — companies,  con- 
ortiums,  monopolies  and  oligopolies, 
lie  polysyllabic  titles  lumber  along, 
nvested  with  the  full  dignity,  mys- 
ery  and  vague  menace  of  their  Greek 
nd  Latin  ancestry. 

Yet  these  names  are  not  actually  so 
terce;  some  are  even  beguilingly  gen- 
ie in  their  basic  meanings.  A  "com- 
any,"  for  instance,  is  usually  regard- 
d  as  something  dismayingly  m- 
uman.  And  so  it  is,  legally.  As 
istinct  from  the  more  approach- 
ble  "partnership"  (partners  are 
t  least  human  beings),  a  "com- 
any"  exists  merely  as  a  legal  en- 
ity,  and  none  of  the  company's 
fficers  bears  individual  responsi- 
ility  for  the  company's  debts  or 
labilities.  The  etymology  of 
company,"  however,  suggests 
omething  quite  different,  some- 
hing  not  only  human  but  even 
amilial  and  intimate.  "Com- 
any"  shares  the  same  root  as  the 
nore  genial  words  "companion" 
nd  "accompany."  We  speak  of 
laving  "company"  for  dinner 
nd,  if  we  enjoy  the  evening,  of  having 
«en  "in  good  company."  When  the 
uests  leave,  we  "part  company."  The 
requent  use  of  "company"  in  the  con- 
ivial  context  of  a  meal  is  no  accident, 
□r  "company"  and  "companion" 
ioth  derive  from  the  idea  of  a  shared 
ileal.  Both  words  come  from  the  Lat- 
ti  cum,  "with,"  plus paras,  "bread."  A 
companion"  is  someone  with  whom 
ou  break  bread,  and  a  "company"  is, 
iterally,  a  gathering  of  people  who 
hare  their  bread. 

leele  Commager  is  professor  of  Greek  and 
atin  at  Columbia  University 

The  modern  slang  term  "bread," 
meaning  "money,"  is  quite  unrelated. 
(Like  "dough,"  similarly  used  a  gen- 
eration ago,  "bread"  is  unleavened  by 
any  obvious  Latinate  ingredient  and 
will  probably  soon  crumble  and  disap- 
pear.) Still,  the  use  of  "bread"  to  mean 
money  does  add  a  certain  accidental 
piquancy  to  the  term  "company,"  or 
"bread  sharers." 

Company  directors  have  not,  tradi- 
tionally, been  thought  of  as  very  com- 
panionable types.  To  improve  their 
image,  and  that  of  their  company, 


they  have  lately  taken  to  holding 
"symposiums"  for  the  company  staff. 
All  very  reasonable,  etymologically: 
A  group  that  shares  its  bread  should 
also  share  its  wine  and  be  sympo- 
siasts.  "Symposium"  comes  from  the 
Greek.sivz,  "with,  together, "  plusposis, 
"drink."  One  of  Plato's  better-known 
dialogues  was  entitled  "The  Sympo- 
sium," and  takes  place  at  a  banquet 
table  presided  over  by  Socrates.  It 
ends  with  all  the  "fellow  drinkers" 
sleepily  temulent,  except  for  Socrates, 
who  continues  to  muse  upon  the 
chances  of  the  same  man's  writing 
both  tragedy  and  comedy.  Few  busi- 

ness symposiums  today  are  so  elevat- 
ed in  their  speculations.  Yet  a  "com- 
pany symposium,"  by  definition  a 
sharing  both  of  food  and  of  drink, 
should,  properly,  approximate  Alex- 
ander Pope's  definition  of  an  ideal 
gathering:  "the  feast  of  reason  and  the 
flow  of  soul." 

At  company  symposiums  there  is 
also  sometimes  a  feast  and  a  flow  of 
private  information — perhaps  talk  of 
earnings  or,  these  days,  of  losses.  The 
speaker  may  warn  that  what  he  says  is 
to  be  taken  in  confidence,  or  sub  rosa. 
Thus,  from  1708: 

But  when  we,  with  caution, 

a  secret  disclose, 
We  cry,  "Be  it  spoken,  Sir, 

under  the  rose. " 
Why  should  something  said  pri- 
vately be  termed  "under  the  rose"  or 
sub  rosa?  Modern  dictionaries  suggest 
that  the  rose  was  a  symbol  of  secrecy 
and  that  a  rose  was  suspended  over 
the  banqueter's  table  as  a  reminder 
that  anything  said  there  should  not  be 
repeated.  A  less  elaborate  and  more 
plausible  explanation  is  given  in  Dr. 
Johnson's  Dictionary  (1755).  He 
quotes  Sir  Thomas  Browne:  "By  desir- 
ing a  secrecy  to  words  spoke  under  the 
rose,  we  mean,  in  society  and  compo- 
tation,  from  the  ancient  custom  in 
symposiack  meetings,  to  wear  chap- 
lets  of  roses  about  their  heads."  Ro- 
mans attending  a  symposium — or 
its  Latinate  equivalent,  "compo- 
tation" — often  wore  rose 
wreaths,  or  chaplets,  upon  their 
heads.  Whatever  these  festive 
companions  said  to  one  another 
at  such  symposiums,  when  their 
tongues  were  loosened  by  wine, 
was  assumed  to  be  secret,  confi- 
dential and  privileged — or,  in  the 
more  flowery  phrase,  sub  rosa. 

Let  us  return  from  wine  to 
bread  and  from  symposiums  and 
compotations  to  companies.  One 
of  the  better  companies  to  invest 
in  is  one  that  does  not  share  its 
bread  too  indiscriminately.  A 
monopoly,  for  instance.  A  "mo- 
nopoly" is  the  "sole  seller"  of  some 
product;  it  comes  from  the  Greek 
mono-,  "one,  single,  sole,"  plus poleo, 
"sell."  The  prefix  "mono-"  is  familiar 
in  English:  a  monotone  is  a  single 
tone;  a  monologue  is  a  speech  by  one 
person;  monarchy  is  a  single  person's 
rulership;  a  monocle  is  an  eyeglass  for 
one  eye;  monogamy  is  marriage  to  one 
person  alone  (as  opposed  to  bigamy,  or 
even  more  extravagant  gestures).  The 
Greek  prefix  mono-  became  so  well 
established  as  to  exercise  a  virtual 
monopoly  on  all  English  words  begin- 
ning with  those  four  letters.  One  of 
the  few  exceptions  is  a  proper  name, 




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the  Monongahela  River,  an  American 
Indian  word  that  managed  to  assert  its 
native  independence  from  the  famil- 
iar Greek  root. 

A  monopoly,  without  competitors 
or  rivals,  is  hard  to  maintain,  both 
legally  and  practically.  Oligopolies 
are  less  difficult.  An  oligopoly  exists 
when  there  are  only  a  "few  sellers"  of 
a  product;  it  comes  from  the  Greek 
oligos,  "few,"  plus  poleo,  "sell."  An 
oligopoly  bears  the  same  relation  to  a 


monopoly  that  an  oligarchy  ("few  rul- 
ers") bears  to  a  monarchy  ("single 

Oligopolies,  or  their  illegitimate 
offspring,  "oilogopolies,"  tend  to  fall 
out  among  themselves:  Witness 
OPEC's  internal  quarrels.  Then,  for- 
mer partners  suddenly  become  com- 
petitors, or  rivals.  "Competitors"  are 
"fellow  seekers"  (Latin  cum,  "with, 
together,"  pluspeto,  "seek").  The  first 
syllable  of  "competitor"  is  the  same 
as  that  of  "company,"  but  there  the 
resemblance  ends.  When  companies 
become  competitors  they  are  no  long- 
er trying  to  share  the  bread;  instead, 
each  "seeks"  it  all  for  itself.  Or  as 
Arthur  Hugh  Clough,  in  the  19th  cen- 
tury, sardonically  put  it: 
Thou  shall  not  covet, 

but  tradition 
Approves  all  forms  of 

"Rival"  is  less  obvious  than  "com- 
petitor" in  its  derivation.  Both  "rival" 
and  "derive"  come  from  the  same  Lat- 
in source,  the  word  for  "river,"  rirus. 
To  know  a  word's  "derivation"  is  to 
know  from  (ch>)  what  river  (rirus)  it 
flows.  "Rival"  also  has  to  do  with  a 
river,  but  its  derivation  is  a  more  me- 
andering one.  A  river  has  two  banks, 
and  "rivals"  are  the  inhabitants  of 
those  opposite  banks,  two  people 
sharing  the  same  river,  or  rirus.  A  dic- 
ey situation,  one  that  leads  easily  to  a 
competition  over  who  should  control 
the  stream.  Two  such  people  might 
become  "partners,"  each  taking  a 
"part"  of  the  stream.  Or,  if  each 
should  insist  on  exclusive  ownership, 

they  become,  in  Shakespeare's  phrase, 
"rival  enemies,"  arguing  from  oppo- 
site banks. 

One  way  to  deal  with  a  "rival"  is  to 
cease  competing,  and  merge,  always 
providing  that  the  Justice  Department 
casts  a  benign  eye  upon  the  union. 
Often  the  first  step  in  a  merger  is  for 
one  company  (Company  A,  say)  to 
make  a  "tender  offer"  for  another 
(Company  B).  Why,  we  wonder, 
"tender"?  Such  proposals  are  not  nor- 
mally based  on  affection,  or  tender- 
ness, but  on  cold  calculations  and 
hard  cash.  Properly  enough,  the  word 
"tender"  has  nothing  to  do  with  the 
adjective  meaning  "delicate,"  or  "lov- 
ing." Instead  it  is  a  noun,  deriving 
from  the  French  verb  tendre,  "to  of- 
fer." Tendre,  in  turn,  comes  from  the 
Latin  verb  tendo,  tendere,  "to  stretch, 
extend."  The  original  force  of  the  En- 
glish "tender"  appears  clearly  in  such 
phrases  as  "to  tender  my  resigna- 
tion"— to  offer  it,  to  extend  it.  Simi- 
larly, "legal  tender"  is  money  that 
may  be  legally  tendered  or  "offered" 
in  payment. 

When  Company  A  makes  its  "ten- 
der offer"  for  Company  B,  it  proposes 
to  buy,  usually  at  a  premium,  the 
stock  of  Company  B  that  is  "ten- 
dered," or  "extended"  by  the  stock- 
holders of  Company  B.  The  "offer"  (of 
money)  is  made  by  Company  A;  the 
"tendering"  (of  stock)  by  Company  B. 
Naturally,  Company  A  hopes  that  its 
offer  will  be  accepted  and  that  a  union 
of  the  two  corporate  bodies  may  be 
consummated  quickly  and  without 

resistance.  Yet  often  Company  B 
proves  skittish  and  coy.  "Not  in  the 
best  interests  of  the  stockholders"  is 
the  usual  formula  of  rejection,  one 
which  cynics  are  likely  to  translate  as 
meaning  that  B's  present  manage- 
ment may  be  fired  if  the  merger  goes 

What  Company  A  proclaims  to  be  a 
marriage  made  in  corporate  heaven, 
Company  B  may  protest  as  an  uncer- 
emonious rape.  In  such  a  case,  the 
courted — or  threatened — Company  B 

FORBES,  OCTOBER  11,  1982 


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may  implore  the  attentions  of  another 
suitor,  Company  C.  It  is  hoped  that 
C's  intentions  will  be  more  honor- 
able, and  its  methods  gentler,  than 
those  of  Company  A;  that  it  will  bet- 
ter espouse  the  interests  of  Company 
B  and  offer  a  fertile  union  with  it. 

Company  C,  thus  encouraged  to  en- 
ter the  lists,  is  often  termed  a  "White 
Knight" — that  is,  a  savior  and  a  pro- 
tector, playing  a  role  like  that  of  Sir 
Walter  Scott's  Lochinvar: 
So  faithful  in  lore, 

and  so  dauntless  in  war, 
There  never  was  knight 
like  the  young  Lochinvar. 

The  White  Knight  figure  has  had  a 
long  and  edifying  career,  stretching 
back  through  medieval  romances  to 
the  Bible,  where  the  Father  himself 
appears  in  such  a  guise:  "And  I  saw 
heaven  opened,  and  behold  a  white 
horse;  and  he  that  sat  upon  him  was 
called  Faithful  and  True,  and  in  righ- 
teousness he  doth  judge  and  make 
war"  (Revelations  19:11). 

When  two  companies  merge,  it  is 
usually  the  smaller  one  that  is  merged 
into  the  larger,  as  Conoco  was  merged 
into  Du  Pont.  "Merge"  comes  from 
the  Latin  verb  mergo,  mergere,  "to 
sink,  to  plunge."  The  assets  of  the 
smaller  company  are  customarily 
sunk,  plunged  or  immersed  into  those 
of  its  larger  partner.  The  same  rrierg- 
root  appears  also  in  the  name  of  a 
duck,  the  "merganser"  [mergo  plus 
anser,  "duck,  goose").  The  merganser 
is  so  named  because  it  is  a  diving 
duck,  one  that  "plunges"  into  the 

water    to    carry   off    unwary  fish. 

The  corporate  term  "merger,"  with 
its  etymological  suggestion  of  sinking 
or  plunging,  is  somewhat  misleading. 
The  merganser  duck  may  immerse  it- 
self in  the  water,  but  then  it  emerges 
and  soars.  Similarly,  a  "merged"  com- 
pany's assets  may  be  "plunged"  into 
those  of  a  larger  corporation,  but  the 
merged  company's  stock  very  rarely 
"plunges"  in  price.  Instead,  the  stock 
normally  soars,  as  stockholders  of 
Conoco,  when  it  was  merged  into  Du 

Pont,  can  happily  attest. 

When  rival  companies  merge,  they 
pool  their  assets.  Given  the  aquatic 
metaphor  behind  "rival"  (river)  and 
"merge"  (immerse),  logic  would  sug- 
gest that  "pool"  also  refers  to  a  com- 
mon body  of  water.  But  English  is 
seldom  so  pellucid.  "Pool,"  as  in  a 
"pooling  of  assets,"  instead  derives 
from  the  French  word  for  "pullet," 
poule.  "To  pool,"  in  the  sense  of  "to 
combine,"  has  nothing  to  do  with  a 

pool  of  water;  etymologically,  it  is  a 
bird  of  a  different  feather.  When  we 
speak  of  a  "car  pool,"  or  a  "betting 
pool,"  the  underlying  metaphor 
seems  to  be  that  of  a  common  nest  in 
which  the  various  pullet  (poule)  eggs 
are  deposited,  or  "pooled."  Odd — but 
if  mergansers  are  linguistically  relat- 
ed to  mergers,  why  should  pullets  not 
be  connected  with  pools? 

In  the  Sixties  (and  perhaps  still),  it 
was  common  for  companionable  indi- 
viduals to  pool  their  assets  to  buy 
stocks.  Usually  such  a  pool  would  be 
started  by  one  person  who  was  willing 
to  contribute  money  that  he  had  set 
aside  as  a  reserve,  or  "nest  egg."  A 
"nest  egg"  is  an  egg,  either  natural  or 
artificial,  placed  in  a  bird's  nest  to 
encourage  the  bird  to  lay  its  own  eggs. 
Similarly,  if  one  person  contributed 
his  "nest  egg"  to  begin  a  financial 
pool,  other  investors  would  more 
willingly  add  their  own  contributions 
to  the  pool.  And  if  the  resulting  pool 
grew  at  a  healthy  rate,  it  would  prove 
that  one  might,  on  occasion,  safely 
put  all  one's  eggs,  or  even  nest  eggs,  in 
one  basket. 

Companies,  like  individuals,  may 
decide  to  pool  their  assets  when  there 
is  a  large  project  in  hand,  such  as  the 
Alaska  pipeline,  which  will  require 
more  than  $25  billion.  Since  no  single 
company  has  the  money  for  so  ex- 
travagant an  enterprise,  various  com- 
panies will  cooperate  and  form  a 
"consortium."  And,  as  is  only  proper 
for  so  grand  a  project,  "consortium" 
has  a  grander  etymological  suggestion 
than  "company."  A  company  merely 

"shares  bread,"  a  consortium  "share;! 
fate"  (Latin  cum,  "with,"  plus  soM 
"fate,  lot"). 

A  sobering  prospect,  to  share  one's 
fate  with  a  fellow,  no  matter  how 
companionable.  Almost  as  serious  as 
getting  married.  Fittingly,  "consor- 
tium," when  not  used  as  a  business 
term,  occurs  almost  always  as  a  legal 
term  in  marriage  proceedings,  anothei 
situation  in  which  the  partners  arc 
assumed  to  "share  their  fates."  A 
business  consortium  is  a  kind  of  cor- 
porate marriage.  And,  as  with  othei 
marriages,  it  need  not  be  permanent 
The  "fates,"  or  sortes,  of  the  various 
companies  are  intertwined — but  only 
temporarily.  When  the  project  foi 
which  the  consortium  was  formec 
comes  to  an  end,  the  various  compa 
nies  enact  a  kind  of  corporate  divorce 
and  go  their  own  ways  again.  The 
consortium  is  finished. 

"Consortium,"  as  a  business  term 
implies  that  the  "joining  of  fates"  will 
not  be  permanent.  Sadly  enough,  the 
same  would  seem  to  be  true  of  the 
word's  connubial  use,  for  the  terrr 
"consortium"  now  appears  most  of 
ten  in  divorce  proceedings.  One 
spouse  is  likely  to  sue  the  other  foi 
"loss  of  consortium,"  a  euphemisrr 
for  saying  that  one  spouse  has  beer 
deprived  of  the  comforts,  especially 
the  comforts  of  sexual  intercourse 
that  he  or  she  had  the  right  to  expeci 
from  a  marriage. 

So  much  for  the  intimidating  in 
habitants  of  the  corporate  jungle.  Ety 
mologically,  these  behemoths  are  lit 

tie  more  than  baa-lambs.  Companie: 
are  but  bread  sharers;  pools  are  jus 
pullet  eggs;  rivals  are  mere  rive 
dwellers,  and  consortiums  no  mor< 
than  married  couples.  Defended 
such  etymological  armor,  why  shouk 
anyone  worry  about  entering  th< 
world  of  higher  finance?  Let  thes< 
derivations  be  your  shield.  And,  in  th< 
likely  event  that  you  perish,  tak< 
comfort  from  the  fact  that  you  di< 
with  a  true  word — or  "etymology"— 
upon  your  hps.  ■ 


FORBES,  OCTOBER  11,  1982 

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isway  International  Corporation,  747  Third  Avenue,  New  York,  New  York  10017 

NYSE  symbol:  TNW 

The  New  York  City  Marathon,  co-sponsored  by  Manufacturers  Hanover. 

The  marketplace  demands 
sustained  effort. 

Manufacturers  Hanover  strives. 

W/inning  a  26.2  mile  marathon 
banning,  positioning,  and  a 
ness  to  reach  beyond  the  levels 
nary  endurance, 
n  very  much  the  same  way, 
acturers  Hanover  has  prepared 
future.  And  our  planning,  our 
ming,  and  our  willingness  to 
:  challenges  are  paying  off  in 
iber  of  significant  ways. 

For  example,  Manufacturers 
Hanover  subsidiaries  now  have  more 
offices  nationwide  than  any  other  bank 
holding  company. 

This  extensive  network  provides 
immediate  access  to  large  corporate 
customers  and  middle  market  compan- 
ies all  across  the  land.  Not  simply  to 
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provide  equipment  financing,  mort- 

gage servicing,  factoring— in  fact  finan- 
cing of  virtually  every  size  and  shape. 

But  the  race  is  a  long  way  from 
being  over.  As  the  future  unfolds,  fluxes 
and  evolves  into  needs  for  new  kinds  of 
financial  relationships,  Manufacturers 
Hanover  will  be  totally  prepared  to 
supply  whatever  the  national— and 
international— marketplace  demands. 
Consider  the  source. 

The  financial  source.Worldwide. 

Member  FD1C 

The  Money  Men 

Michael  O'Higgins  thinks  success  should 
breed  caution.  "After  you  fail,  you  re.  too 
timid, ' '  he  says.  ' 7  like  to  be  aggressive  then. 

Control  your 
don't  follow  them 

By  Barbara  Rudolph 

It  is  a  common  dream:  Give  me  a 
few  million  dollars  to  invest,  let 
me  play  the  market  with  a  free 
hand  and  I  shall  make  my  clients  and 
myself  rich. 

Michael  O'Higgins,  a  35-year-old 
money  manager  who  operates  out  of 
his  Cape  Cod-style  house  in  a 
suburb  of  Albany,  N.Y.,  pulled 
it  off.  His  portfolio  has  swelled, 
from  $900,000  four  years  ago  to 
$33  million  today.  What's  more, 
A.G.  Becker  calculates  that 
O'Higgins'  total  yield  over  the 
past  three  years  has  averaged 
20.2%.  That  places  him  in  the 
top  1%  of  all  equity  fund  man- 
agers rated  by  Becker. 

If  you  picture  your  typical 
money  manager  as  a  harried  guy, 
juggling  lists  of  stocks,  reading 
obscure  research  reports  and 
barking  telephone  orders  to  his 
broker,  O'Higgins  defies  the  ste- 
reotype. He  doesn't  even  use  a 
computer,  and  checks  stock 
prices  on  his  cable  TV.  The  attic 
where  he  works  is  cluttered  with 
cardboard  boxes  full  of  yellow- 
ing newspaper  clippings. 

O'Higgins  can  operate  so 
simply  because  he  is  a  technical 
analyst  and  follows  market  indicators 
rather  than  corporate  fundamentals. 
He  invests  in  only  30  companies, 
components  of  the  Dow  Jones  indus- 
trial average.  This  buying  just  a  few 
stocks  for  all  his  clients  keeps  the 
transaction  costs  down.  So  does  trad- 
ing through  a  single  custodian,  the 
Bank  of  New  York,  which  offers  the 
equivalent  of  a  75%  discount  on  its 
brokerage  commissions. 

O'Higgins'  objective  is  to  find 
stocks  that  have  been  performing 
poorly  but  are  beginning  to  improve. 
He  uses  a  formula  that  determines  the 
relative  strength  of  the  Dow  stocks;  it 
tells  him  how  they  are  faring,  com- 
pared with  the  overall  average.  When 
he  senses  a  turnaround,  he  will  buy 
only  the  cyclical,  fairly  volatile  Dow 

Michael  O'JiiggittS 

"Follow  guys  who  sell  when  everyone  buys 

stocks,  avoiding  the  bluest  of  blue 
chips  such  as  IBM  and  GE. 

For  example,  O'Higgins  has  done 
well  with  Alcoa  and  International  Pa- 
per. "These  stocks  will  really  move, 
way  up  or  way  down,  with  the  mar- 
ket," he  explains. 

The  formula  does  not  deliver  every 
time,  of  course.  In  fact,  it  didn't  even 
deliver  the  first  time  out.  O'Higgins 
started  business  in  April  1978  and  by 

the  end  of  the  year  his  median  ac^ 
count  fell  15%.  His  formula  failed 
because  the  DJIA  as  a  whole  was  sink- 
ing — it  dropped  15%  between  Sep- 
tember and  November.  Take  O'Hig- 
gins' experience  with  Inco.  Last  May 
he  bought  it  because  he  saw  that  its 
relative  strength  performance  was  lm 
proving.  But  between  May  and  Au 
gust  Inco  lost  20%  of  its  value.  Why 
The  collapse  of  the  nickel  market  and 
troubles  with  its  1974  acquisition  oi 
ESB,  Inc. — forces  beyond  the  domain 
of  technical  analysts.  In  retrospect, 
O'Higgins  concedes  that  a  better  uni 
derstanding  of  the  company's  busij 
ness  might  have  kept  him  from! 
buying  its  stock. 

In  determining  whether  to  be  in  the 
market  at  all,  O'Higgins  likes  to  "fol 
low  the  contrarians,  the  smart  moni 
cy,  guys  who  are  buying  when  every 
one  else  is  selling,  and  vice  versa."  Foi 
starters,  he  examines  insider  trading 
levels  and  also  considers  the  level  of 
short  selling.  When  he  sees  special- 
ists, such  as  NYSE  members,  short 
selling,  he  turns  bearish. 

Where  O'Higgins  tends  to  fumble  is 
in  real  bull  markets.  In  1 980,  for  exam 
pie,  he  ended  the  year  in  the  bottom 
35%  of  equity  managers  monitored  by 
A.G.  Becker  with  his  median  account! 
up  26.2% — a  below-averagej 
showing  for  that  bull  market 
After  a  good  first  quarter,  O'Hig- 
gins bought  nine-month  Trea-1 
sury  bonds,  locking  in  16% 
yield.  "I  got  some  complaints 
that  year,"  O'Higgins  says.  "I 
know  that  I'll  never  make  as 
much  money  as  my  competitors] 
in  speculative  bull  markets,  but  I 
don't  give  up  what  I  make  in  bear 
markets,  either."  That  proved 
true  last  year.  In  1981,  a  bloodyl 
year  for  most  money  men, 
O'Higgins'  median  account  was 
up  7Vi%.  He  missed  this  year's 
August  rally,  though,  with  "not 
a  dime"  in  the  stock  market. 

O'Higgins'  success  in  bear 
markets  and  relative  weakness 
in  bull  markets  reflects  his  abili- 
ty to  go  against  instinct.  He  tries 
to  do  what  feels  wrong.  "Most 
."      people  get  too  confident  when 

 •  they're  successful.  I  try  to  bd 

conservative  then,  so  I  won't  make  as 
much  money  in  bull  markets.  Similar- 
ly, after  you've  failed,  you're  too  timid 
I  like  to  be  aggressive  then,"  he  says. 

That  can  be  good  advice — as  O'Hig 
gins'  third-quarter  1981  showing 
demonstrates.  He  was  hit  hard  by  the 
market — at  one  point  dropping  10% 
more  than  the  S&P's  500,  losing  10% 
of  his  total  capital  and  5  of  his  69 
clients.  So  O'Higgins  took  a  deed 


FORBES,  OCTOBER  1  1,  1982] 

Want  to  see  more  lives 
saved  from  fire? 

Borg-Wamer's  Pyrotronics  early  warning  system  can  sense  fire  before  any  sign  of  smoke,  and 
extinguish  its  threat  with  a  nontoxic,  nondestructive  gas  for  protection  beyond  detection.  That's  Borg-Warner 
today.  And  there's  more  to  come.  In  eight  major  markets,  Borg-Warner  is  a  company  to  watch. 



For  an  annual  report  write:  Borg-Warner,  Dept.  50.  200  South  Michigan  Avenue,  Chicago,  Illinois  60604 

The  Money  Men 

Michael  O'Higgins  thinks  success  should 
breed  caution.  "After  you  fail,  you're,  too 
timid,  "hesays.  "I  like  to  be  aggressive  then. " 

Control  your 
don't  follow  them 

By  Barbara  Rudolph 

It  is  a  common  dream:  Give  me  a 
few  million  dollars  to  invest,  let 
me  play  the  market  with  a  free 
hand  and  I  shall  make  my  clients  and 
myself  rich. 

Michael  O'Higgins,  a  35-year-old 
money  manager  who  operates  out  of 
his  Cape  Cod-style  house  in  a 
suburb  of  Albany,  N.Y.,  pulled 
it  off.  His  portfolio  has  swelled, 
from  $900,000  four  years  ago  to 
$33  million  today.  What's  more, 
A.G.  Becker  calculates  that 
O'Higgins'  total  yield  over  the 
past  three  years  has  averaged 
20.2%.  That  places  him  in  the 
top  1%  of  all  equity  fund  man- 
agers rated  by  Becker. 

If  you  picture  your  typical 
money  manager  as  a  harried  guy, 
juggling  lists  of  stocks,  reading 
obscure  research  reports  and 
barking  telephone  orders  to  his 
broker,  O'Higgins  defies  the  ste- 
reotype. He  doesn't  even  use  a 
computer,  and  checks  stock 
prices  on  his  cable  TV.  The  attic 
where  he  works  is  cluttered  with 
cardboard  boxes  full  of  yellow- 
ing newspaper  clippings. 

O'Higgins  can  operate  so 
simply  because  he  is  a  technical 
analyst  and  follows  market  indicators 
rather  than  corporate  fundamentals. 
He  invests  in  only  30  companies, 
components  of  the  Dow  Jones  indus- 
trial average.  This  buying  just  a  few 
stocks  for  all  his  clients  keeps  the 
transaction  costs  down.  So  does  trad- 
ing through  a  single  custodian,  the 
Bank  of  New  York,  which  offers  the 
equivalent  of  a  75%  discount  on  its 
brokerage  commissions. 

O'Higgins'  objective  is  to  find 
stocks  that  have  been  performing 
poorly  but  are  beginning  to  improve. 
He  uses  a  formula  that  determines  the 
relative  strength  of  the  Dow  stocks;  it 
tells  him  how  they  are  faring,  com- 
pared with  the  overall  average.  When 
he  senses  a  turnaround,  he  will  buy 
only  the  cyclical,  fairly  volatile  Dow 

Michael  O  'Higgins 

"Follow  guys  who  sell  when  everyone  buys 

stocks,  avoiding  the  bluest  of  blue 
chips  such  as  IBM  and  GE. 

For  example,  O'Higgins  has  done 
well  with  Alcoa  and  International  Pa- 
per. "These  stocks  will  really  move, 
way  up  or  way  down,  with  the  mar- 
ket," he  explains. 

The  formula  does  not  deliver  every 
time,  of  course.  In  fact,  it  didn't  even 
deliver  the  first  time  out.  O'Higgins 
started  business  in  April  1978  and  by 

the  end  of  the  year  his  median  ac- 
count fell  15%.  His  formula  failed 
because  the  DJIA  as  a  whole  was  sink-| 
ing — it  dropped  15%  between  Sep- 
tember and  November.  Take  O'Hig- 
gins' experience  with  Inco.  Last  May 
he  bought  it  because  he  saw  that  its 
relative  strength  performance  was  im- 
proving.  But  between  May  and  Au-I 
gust  Inco  lost  20%  of  its  value.  Why? 
The  collapse  of  the  nickel  market  and 
troubles  with  its  1974  acquisition  of| 
ESB,  Inc. — forces  beyond  the  domain 
of  technical  analysts.  In  retrospect, 
O'Higgins  concedes  that  a  better  un- 
derstanding of  the  company's  busi- 
ness might  have  kept  him  from 
buying  its  stock. 

In  determining  whether  to  be  in  the 
market  at  all,  O'Higgins  likes  to  "fol- 
low the  contrarians,  the  smart  mon- 
ey, guys  who  are  buying  when  every- 
one else  is  selling,  and  vice  versa."  For 
starters,  he  examines  insider  trading 
levels  and  also  considers  the  level  of 
short  selling.  When  he  sees  special- 
ists, such  as  NYSE  members,  short 
selling,  he  turns  bearish. 

Where  O'Higgins  tends  to  fumble  is 
in  real  bull  markets.  In  1 980,  for  exam 
pie,  he  ended  the  year  in  the  bottom 
35%  of  equity  managers  monitored  by 
A.G.  Becker  with  his  median  account 
up  26.2% — a  below-average 
showing  for  that  bull  market. 
After  a  good  first  quarter,  O'Hig- 
gins bought  nine-month  Trea- 
sury bonds,  locking  in  16% 
yield.  "I  got  some  complaints 
that  year,"  O'Higgins  says.  "I 
know  that  I'll  never  make  as 
much  money  as  my  competitors 
in  speculative  bull  markets,  but  I 
don't  give  up  what  I  make  in  bear 
markets,  either."  That  proved 
true  last  year.  In  1981,  a  bloody 
year  for  most  money  men, 
O'Higgins'  median  account  was 
up  7Vi%.  He  missed  this  year's 
August  rally,  though,  with  "not 
a  dime"  in  the  stock  market. 

O'Higgins'  success  in  bear 
markets  and  relative  weakness 
in  bull  markets  reflects  his  abili- 
ty to  go  against  instinct.  He  tries 
to  do  what  feels  wrong.  "Most 
."      people  get  too  confident  when 

 •  they're  successful.  I  try  to  be 

conservative  then,  so  I  won't  make  as 
much  money  in  bull  markets.  Similar- 
ly, after  you've  failed,  you're  too  timid. 
I  like  to  be  aggressive  then,"  he  says. 

That  can  be  good  advice — as  O'Hig- 
gins' third-quarter  1981  showing 
demonstrates.  He  was  hit  hard  by  the 
market — at  one  point  dropping  10% 
more  than  the  S&P's  500,  losing  10% 
of  his  total  capital  and  5  of  his  65 
clients.  So  O'Higgins  took  a  deep 


FORBES.  OCTOBER  11.  1982 

Want  to  see  more  lives 
saved  from  fire? 

Borg-Wamer's  Pyrotronics  early  warning  system  can  sense  fire  before  any  sign  of  smoke,  and 
extinguish  its  threat  with  a  nontoxic,  nondestructive  gas  for  protection  beyond  detection.  That's  Borg-Warner 
today.  And  there's  more  to  come.  In  eight  major  markets,  Borg-Warner  is  a  company  to  watch. 



For  an  annual  report  write:  Borg-Warner,  Dept.  50. 200  South  Michigan  Avenue,  Chicago,  Illinois  60604 

The  Money  Men 

breath  and  jumped  back  into  the  mar- 
ket, posting  a  4%  increase  in  the 
fourth  quarter.  "It  was  a  crisis  but  also 
an  opportunity,"  says  O'Higgins.  "I 
thought,  'Gee,  my  clients  are  mad  at 
me,  but  I'm  still  up  7'/2%  for  the  year 
when  everyone  else  is  down  2%. 
There  must  be  some  unhappy  people 
out  there — someone  else's  clients.'  " 
In  the  end,  O'Higgins  did  snare  sever- 
al accounts  from  his  competitors. 

O'Higgins  is  most  aggressive  when 
he's  actually  most  vulnerable  because 
he  grew  familiar  with  sudden  changes 
in  his  fortunes.  His  family  lost  every- 
thing twice.  The  second  time  was 
when  O'Higgins  was  14  and  his  father 
abaiidoned  his  bankrupt  soap  and  per- 

fume factory  in  New  Jersey.  "That 
prepared  me,"  O'Higgins  says. 

It  gave  O'Higgins  confidence  to  be 
independent.  In  1978  he  was  a  stock- 
broker for  White,  Weld  &  Co.,  making 
$40,000  a  year  supporting  his  wife  and 
two  kids.  As  White,  Weld's  business 
was  softening,  O'Higgins  decided  to 
go  it  alone.  He  rustled  up  clients  from 
his  roster  of  White,  Weld  customers. 
He  owned  the  brownstone  where  he 
lived,  and  "my  only  real  expense  was 
food,"  he  explains.  O'Higgins  also 
persuaded  his  former  secretary  to  type 
for  him  in  her  spare  time — on  a 
White,  Weld  typewriter — and  he  used 
the  local  library  to  copy  papers. 

At  first  O'Higgins  had  to  overcome 
his  salesman's  instincts.  "People 
don't  like  to  be  sold  directly  by  a 
money  manager;  they  want  to  call 

you,"  he  says.  So  he  began  what  he 
calls  third-party  selling.  O'Higgins 
calls  local  lawyers  and  accountants, 
often  blindly,  asks  them  to  lunch  and 
pitches  his  investment  skills.  "These 
are  the  people  that  other  people,  po- 
tential clients,  will  ask  for  advice,"  he 
explains.  Location  helps,  too,  since 
there  are  few  professional  money 
managers  in  the  Albany  area. 

O'Higgins,  who  says  revenue  from 
his  current  accounts  approaches 
$150,000,  appreciates  that  his  clients 
could  disappear  overnight.  But  for 
him  that's  part  of  the  fun.  "When  I 
decided  to  start  this  business,  my  wife 
asked  me  what  would  happen  if  I  did 
poorly  and  people  sued  me,"  O'Hig 
gins  says  with  his  characteristic 
laugh.  "I  told  her,  'Honey,  it's  simple. 
We  lose  everything.'  "  ■ 

Control  Data  may  have  had  good  inten- 
tions toward  its  workers  in  South  Korea, 
hut  good  intentions  weren 't  enough. 

The  reluctant 
union  buster 

By  Pamela  Sherrid 

Atrip  to  the  Orient  always 
promises  adventure,  but  a  few 
b  months  ago  two  Minneapolis 
businessmen  got  more  thrills  than 
they  bargained  for. 

The  Control  Data  Corp.  executives, 
Roger  Wheeler  and  Edward  Vargon, 
flew  to  South  Korea  to  mediate  a  labor 
dispute  at  a  Seoul  computer  compo- 
nent plant  where  most  of  the  workers 
were  young  women.  Reacting  to  com- 
plaints from  U.S.  church  groups,  the 
two  Americans  v/ere  looking  into  the 
firing  of  six  workers  who  had  instigat- 
ed a  slowdown,  but  the  Korean  gov- 
ernment insisted  on  punishing  the 
troublemakers.  After  explaining  this 
impasse  to  union  leaders,  the  Ameri- 
cans were  getting  up  to  leave  the  plant 
at  the  end  of  the  day. 

Suddenly,  80  assembly-line  work- 
ers pressed  into  the  small  conference 
room.  "The  union  leaders  said,  'Look, 

South  Korean  President  Chun  Doo-I/iccm 
Getting  tough  with  labor. 

you're  not  going  to  leave  here  until 
you  agree  to  bring  back  those  six  em- 
ployees,' "  recalls  Vargon.  "The  girls 
were  screaming  and  shouting  and 
fainting  and  crying."  With  a  mass  of 
women  blocking  the  door,  the  two 

men  had  little  choice  but  to  sit  down 
in  shock.  Their  captors  supplied  cof- 
fee and  juice,  but  as  the  hours  went  by 
that  turned  into  its  own  kind  of  tor- 
ture. "I  had  to  decide  whether  I  could 
go  to  the  bathroom  in  my  pants  with 
dignity,"  Wheeler  recalled. 

Finally,  a  Korean  male  manager 
slammed  his  fist  on  the  table  and  de- 
clared that  the  honor  of  South  Korea 
was  at  stake.  He  led  the  two  Ameri- 
cans to  the  bathroom.  In  the  privacy 
of  the  urmals,  the  Americans  were 
free  to  plan.  None  of  the  detainers 
spoke  English,  so,  back  in  the  confer- 
ence room,  Wheeler  placed  a  call  to 
Minneapolis  under  the  pretext  of  dis- 
cussing the  rehinngs. 

Instead  he  explained  his  predica- 
ment to  CDC  Deputy  Chairman  Nor- 
bert  Berg,  who  set  a  rescue  party  in 
motion  by  calling  Senator  David  Dur- 
enberger  (R-Minn.).  That  got  the 
State  Department  involved.  Finally, 
Korean  police  arrived  at  the  plant  in 
the  wee  hours  of  the  morning. 

The  next  day  the  Americans  were 
safely  on  their  way  back  to  the  Mid- 
west, but  CDC's  troubles  were  far 
from  over.  Its  fundamental  problem 
in  Korea  was  the  all-too-familiar  one 
of  technological  change.  Microelec 
tronics  had  overtaken  the  workers' 
painstaking handwinng,  employment 
had  fallen  and  CDC  officials  say  clos- 
ing their  Seoul  facility  was  inevitable. 

The  company,  however,  was  also 
trapped  on  a  political  battleground  be- 
tween a  government  willing  to  use 
authoritarian  tactics  to  keep  labor 
costs  in  line  and  a  singularly  militant 
union.  When  he  came  to  power  in 
1980,  President  Chun  Doo-Hwan 
purged  the  labor  unions,  leaving  them 
even  weaker  than  under  his  assassi- 
nated predecessor,  Park  Chung-Hee. 

FORBES,  OCTOBER  11,  1982 

to  i«l 

Two  of  thefew  things 
you  can  count  on. 


there's  so  little  to  be  sure 

of  ^erica's  most  respect*,  insurance 
— S'iuse 

Is  this  because  "  ; -  "ucy?  Because 
we know  how  to  write  m  o  apaHg^ 

S^SWK rofbSuse  of  our 
tSorresponsivec^e^  ^ 
T,'s  all  of  these  things  and  more  ij 

;rciai  msuia..'   „.,„.  nf  nrotection 


.   -^o  r.nmoanies 

too  William  Street,  New 


A  shrinking  world  has  put  South  Africa's  wealth  of 
raw  materials  and  competitively  priced  finished 
goods  almost  at  your  doorstep.  Our  computer  link 
puts  you  in  direct  touch  with  exporters  of  products  you 
need.  Modern  transportation  facilities  speed  your 
order,  insuring  confirmed  delivery  dates.  Write  or 
call  one  of  our  offices  to  learn  how  your  competitors 
are  taking  advantage  of  our  strategic  minerals,  agri- 
cultural and  mining  machinery,  auto  parts,  oil  drill- 
ing equipment,  foundry  products,  a  range  of  items 
from  fine  footwear  and  knockdown  furniture  to  excel- 
lent wines,  exotic  food  products  and  high  fashions. 

Investment  Inducements 

A  healthy  economy,  competitive  labor,  an  excellent 
infrastructure,  a  fine  banking  system  and  an  abun- 
dant supply  of  most  raw  materials  are  only  a  few  of 
the  reasons  why  you  should  invest  in  South  Africa. 
In  1980  foreign  investors,  including  260  major  U.S. 
companies,  made  an  average  profit  of  20%.  One  of 
our  U.S.  offices  can  provide  complete  information 
on  all  aspects  of  investment,  including  the  generous 
incentives  that  are  available  to  investors. 


Contact  an 

listed  at  right. 
Your  inquiry 
will  receive 
our  personal 

Deputy  Consul  General  (Commercial) 

South  African  Consulate  General 

425  Park  Ave. ,  New  York,  NY  10022  (212)  838-1700 

The  Consul  (Commercial) 

South  African  Consulate  General 
1980  S.  Post  Oak  Blvd.,  Suite  1520 
Houston,  TX  77056  (713)  850-0150 

444  N.  Michigan  Ave.,  Suite  3100 
Chicago,  IL  60611  (312)  828-9200 

9107  Wilshire  Blvd. ,  Suite  400 
Beverly  Hills,  CA  90210  (213)  858-0380 

Don't  make  your  mail 
come  looking  for  you. 

If  you  don't  notify  everybody  at 
least  one  month  before  you  move, 
some  of  your  favorite  mail  may 
spend  a  lot  of  time  looking  for  your 
new  address. 

You  can  pick  up  a  free  Change-  f^£'\ 
of-Address  Kit  at  the  Post  Office    f  M  \ 

to  make  notifying  even  easier. 

Also,  be  sure  to  look  in  magazines 
and  use  the  convenient  change-of- 
subscription  form  as  well. 

Moving  should  be  an  enjoyable 
experience.  But  it  won't  be  fun  if 
your  mail  gets  left  behind. 

Let  everybody  k  now  where  you're  moving  to. 

c'  USPS  1981 

Still,  CDC's  union  had  unusual! 
Strength  because  the  company  pro- 
tected it  from  the  government's  toughj 
policies.  CUC  led  the  Korean  elecJ 
tronics  industry  m  wages.  The  unioni 
also  had  close  ties  with  a  Christian! 
activist  group  that  "teaches  workers) 
to  organize,"  says  a  State  Department 
expert.  "That's  tame  stuff  to  us,  but  jfl 
a  Confucian  society  it  seems  radical."! 

Finally,  CDC's  own  blunders  did 
not  help.  "The  company  did  not  keen 
its  Korean  management  or  union  inn 
formed  about  its  economic  prowl 
lems,"  says  a  State  Department  oml 
cial,  and  CDC  underestimated  the  ad-j 
versanal  tensions  in  Korea.  Thcsq 
cultural  crossed  wires  short  circuited! 
into  ugly  violence  in  July.  Rumors) 
began  to  fly  that  CDC  had  decided  td 
close  its  plant  for  good.  Through  the 
human  rights  network,  however,  the 
union  heard  the  news  before  manage- 
ment. Left  in  the  dark  by  headquar-- 

The  Korean  government 
used  the  closing  to  launch 
an  antilabor  media  blitz,  in- 
eluding  documentaries  on 
the  evils  of  church  activists* 

ters,  CDC's  Korean  supervisors — all 
male — felt  that  the  union,  not  techn 
nology,  was  costing  them  their  jobsj 
As  the  women  workers  were  leaving 
work  on  a  Friday  evening,  the  managj 
ers  attacked  the  union  leaders.  Five 
women  were  hospitalized. 

The  Korean  government,  used  the 
plant  closing  to  launch  an  antilaboi 
media  blitz,  including  TV  documen- 
taries on  the  subversive  nature  of  reli- 
gious activists.  U.S.  church  leaders 
don't  dispute  CUC  s  right  to  close  arl 
obsolete  plant;  they  are  dismayed  ai 
the  timing  and  the  Korean  govern- 
ment's reaction.  Now  the  National 
Council  of  Churches  threatens  tq 
raise  this  issue  in  every  country  where 
CUC  operates.  The  company  says  it  is 
offering  generous  severance  pay  and 
retraining  to  the  laid-off  workers — but) 
the  churchmen  are  skeptical. 

If  this  sounds  like  a  mess,  it  is — all 
the  more  so  because  CUC  has  already 
tangled  with  church  groups  over  its 
role  in  South  Africa.  The  South  Kore- 
an government  isn't  a  clear-cut  villain 
either.  It  is  afraid  that  strong  unions 
would  shift  foreign  investment  tc 
lower-wage  countries  like  Indonesia 
and  the  Philippines.  The  lesson:  It 
takes  far  more  than  good  intentions  td 
manage  Third  World  workers,  and  big 
corporate  headaches  can  result.  Rej 
member  that  when  you  are  thinking 
about  closing  that  plant  in  Ohio.  ■ 


FORBES,  OCTOBtR  11,  1982 

The  old  grey  hare  just  ain't  what  he  used  to  be. 

Old  age  and  poor  circulation  go  hand  in  hand    and  the  bunny 
isn't  getting  any  younger  In  fact,  since  1972,  Playboy's  total 
circulation  has  tumbled  by  more  than  16  million  copies  or  25%. 
(While  Penthouse  increased  its  total  circulation  by  129%  in  the 
same  period 

But  the  greatest  blow  of  a 
the  real  battleground  for 
competitive  sales. 
Playboy's  once  imposing 
newsstand  presence  has 
collapsed  by  49%  (During 
the  same  10-year  period, 
Penthouse  enlarged  its 
newsstand  sale  by  1 19%  to 
become,  issue  for  issue, 
the  industry's  all-time 
biggest  provider  of  profits.) 

And  What 
About  Demographics? 

Playboy's  upscale 
readership  has  fallen  on 
equally  difficult  times  Male 
readers  with  college 
educations  are  down  15% 

was  on  the  newsstands, 

The  last  10  years 

Comparison  between  Penthouse 
and  Playboy  from  1972  through  1981 



Newsstand  Circulation 


+  119% 

Total  Circulation 


+ 1 29% 

Total  Male  Readership 


+  348% 

Men  Attended/Graduated  College 


+  292% 

,  1 

Men  Protessional/Managerial 


+  306% 

Male  readers  with  professional  and  managerial  positions  are 
down  26%. 

The  reverse  is  true  for  Penthouse.  According  to  SMRB, 
today's  Penthouse  younger  reader  is  more  affluent,  and  holds  a 
higher  position  in  business  than  the  reader  of  Playboy.  What's 
more,  Penthouse's  college  educated  male  readership  is  up 

292%.  And  its  professional 
and  managerial  readership 
is  up  306% 

The  Reason. 

Playboy  magazine  hasn't 
changed  all  that  much  in 
the  last  10  years,  but  the 
world  has!  And  so  has  its 
tastes  and  expectations 

Today's  trend-setters 
and  opinion-makers  have 
a  choice:  safe,  non- 
controversial,  predictable 
Playboy  or  provocative, 
proud  and  controversial 
Penthouse.  The  figures 
speak  for  themselves 

The  PLAYBOY  reader...  his  lust  was  for  a  better  magazine. 

Combining  two  parts  hydrogen  with  one 
part  oxygen  isn't  as  easy  as  you  would 
think.  Combining  professors  and  business- 
men may  not  be  either. 

Business  goes 
to  college 

By  Paul  B.  Brown 

Researchers  work  at  Canu  "Je -Mellon  University's  Robotics  Institute 
Joining  forces  with  th      est  and  brightest. 

month  that  it  will  give  $50  mil- 
lion in  cash  and  equipment  to  20  engi- 
neering  schools,  it  became  part  of  . 
rapidly  growing  list  of  corporations 
trying  to  join  forces  with  the  brains  aj 
the  nation's  top  universities. 

Appealing  as  it  may  seem  to  enlist 
the  nation's  115,000  research  profes- 
sors and  their  students  in  the  battle  tc 
make  industry  more  productive 
IBM — like  Monsanto,  Exxon  and  the 
others  before  it — will  find  the  mergei 
won't  be  accomplished  by  just  writing 
out  a  check. 

But,  the  incentive  is  there  for  both 
to  try. 

For  the  nation's  100  or  so  majo: 
research  universities  the  carrot  is 
grant  money.  Up  until  recently,  i 
didn't  much  matter  if  the  work  bein$ 
done  in  a  university  had  any  commer 
cial  application.  Two-thirds  of  univer 
sity  research  funding  came  from  ; 
nonprofit  entity — the  government— 
which  has  little  interest  in  the  com 
mercial  applications  of  discoveries. 

But  this  is  beginning  to  change,  as 
Uncle  Sam  starts  to  tighten  the  purse 
strings.  By  next  year  federal  funding 
to  universities  for  basic  research  wil 
have  declined  8%  (in  constant  dol 
lars)  since  1967.  In  addition,  universi 
ties  have  been  losing  bright  younj 
faculty  members  to  business,  whicf 
offers  better  research  equipment  anc 
more  money. 

Paul  Gray,  president  of  MIT,  sum; 
up  the  situation:  "The  research  uni 
versities  in  the  U.S.  are  in  a  fragile  anc 
somewhat  anemic  state,  followinji 
more  than  a  decade  of  declining  finan 
cial  support,  fierce  inflation  and  flag 
ging  public  support." 

So  the  nation's  top  research  univer 
sities  are  starting  to  accept  tentative 
offers  of  financial  support  from  busi 
ness.  Monsanto  recently  gave  Wash 
ington  University  in  St.  Louis  $23. f 
million  for  research  in  peptides  anc 
proteins.  Stanford  received  $14  mil 
lion  from  19  companies  to  study  inte 
grated  circuitry.  Exxon  sent  $8  mil 
lion  to  MIT  to  fund  combustion  re 
search.  In  all,  corporations  gavi 
universities  $236  million  for  projec 
research  in  1980.  While  that  is  jus 
6%  of  the  $4  billion  the  governmen 
spent  on  academic  research  last  year 
it  still  represents  a  doubling  of  corpo 
rate  funding  in  just  three  years. 

The  advantages  to  business  fo 
funding  academic  research  are  clear 

•  There  are  673,000  full-time  scien 
tific  research  positions  in  the  U.S 
according  to  National  Science  Foun 
dation  figures,  and  more  than  25%  o 


FORBES,  OCTOBER  11,  1982 

them  aren't  in  industry. 

•  Giving  grants  to  universities  is 
cheaper  than  doing  the  work  in- 
fiouse.  There  are  no  laboratories  to 
build,  no  salaries  for  support  staff  and 
no  perks.  The  research  employees 
still  work  for  the  university. 

•  Funding  the  research  gives  corpo- 
rate research  and  development  staffs 
easier  access  to  other  bright  minds  in 
their  field — minds  that  may  have  a 
different  perspective. 

•  Providing  grants  also  helps  ensure 
i  better  future  crop  of  corporate  re- 
searchers. "There  is  an  urgent  need 
:or  advanced  educational  programs 
:hat  combine  industrial  and  engineer- 
ing disciplines,  computer  sciences 
ind  business  administration,"  says 
IBM  President  lohn  Opel.  "We  want 
:o  be  part  of  that  cooperative  effort." 

Never  have  these  advantages 
seemed  so  appealing  to  U.S.  industry. 
\s  sharply  increased  foreign  competi- 
:ion  has  sent  America  searching  for 
lew  ideas  to  stay  ahead,  business  has 
started  to  wonder  whether  research 
Deing  done  at  universities  could  be  an 
mportant  ally. 

Some  universities  are  years  ahead 
in  areas  that  corporations  now  be- 
ieve  can  be  profitable.  One  example 
s  hybridoma  research — where  cancer 
:ells  and  antibody  cells  are  combined 
:o  form  a  hybrid  cell  which  produces  a 
3ure  antibody  that  can  reproduce  end- 
essly.  Another  example  is  recombin- 
int  DNA.  Here,  characteristics  of  one 
organism,  say  from  a  cell  of  an  animal 
:hat  can  produce  insulin,  are  intro- 
duced into  a  cell  of  another  organism 
Adhere  they  are  wanted.  Major  univer- 
sities, like  Stanford  and  Washington 
Jniversity,  have  been  doing  this  re- 
search for  years,  while  it  has  been 
/irtually  ignored  by  business. 

So  if  both  sides  are  willing,  why 
.von't  we  soon  see  a  steady  flow  of 
new  products  coming  from  those  ivy- 
:overed  laboratories?  Well,  to  start 
/vith,  business  and  universities  don't 
hink  in  the  same  terms. 

Edward  David  Jr.,  president  of 
ixxon  Research  &.  Engineering  Co., 
:xplains:  "To  the  industrialist,  paying 
or  research  implies  ownership  of  the 
esults,  which  are  used  to  establish  a 
proprietary  competitive  advantage  if 
it  all  possible.  University  faculty  con- 
iidcr  themselves  a  community  of 
scholars  whose  primary  objective  is 
he  creation  of  knowledge.  Commer- 
ualization  of  that  knowledge  is  seen 
)y  some  academicians  as  exploitation 
)f  the  public." 

Universities  also  tend  to  dislike  the 
tusinessman's  short-term  focus  on  fi- 
lancial  results,  which  leads  to  re- 
search designed  to  improve  an  exist- 

:ORBES,  OCTOBER  11,  1982 

In  financial  futures,one  company  stands  out. 


Imagine  living  with  a  potential  time  bomb  inside  you.  That's  exactly  what 
it's  like  tor  the  thousands  of  sons  and  daughters  of  Huntington's  Disease  victims. 

They  wait.  Hoping  that  the  50/50  odds  of  inheriting  this  terrifying,  fatal 
illness  fall  in  their  favor.  With  no  possible  way  of  knowing  if  and  when  it  will  strike. 

Until  the  bomb  goes  off. 
Give  generously  to  the  National  Huntington's  Disease  Association. 

Help  make  this  generation  its  last. 

H>  National  Huntington's  Disease  Association  128A  East  74  Street,  NY,  NY  10021 

This  space  contributed  by  publisher 


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c  1982     '  ^ 


ing  product  instead  of  trying  to  create 
new  ones.  There  is  often  a  practical 
reason  for  this  bias  among  academics: 
The  California  Institute  of  Technolo- 
gy (Cal.  Tech.),  for  example,  rarely 
will  award  a  Ph.D.  to  a  student  if  his 
research  only  involves  improving  an 
existing  product.  Not  surprisingly, 

corporate  researchers  agree  with  their 
university  colleagues  on  this  point. 
"You  don't  invent  the  transistor  by 
starting  with  the  vacuum  tube,"  says 
C.  Kumar  N.  Patel,  executive  director 
of  research  physics  at  Bell  Laborato- 
ries. "You  have  to  look  at  problems 
from  a  different  perspective." 

Those  problems  are  being  worked 
out.  Major  universities  are  developing  1 
corporate  funding  guidelines  which 
require  that  grants  can  only  specify  an  K 
area  to  be  worked  in,  not  a  particular  t, 
product.  In  return  the  corporate  spon- 1 
sor  gets  an  exclusive  license,  with  the  BP 
understanding  he  will  do  his  best  toL- 
exploit  the  finding.  (The  intent  is  to  r 
prevent  a  corporation  from  sitting  on  I* 
research  that  would  hurt  it  competi-  [ 
tively.)  In  cases  of  joint  funding,  like  m 
the  integrated  circuit  project  at  Stan- 1 
ford,  the  research  findings  are  pooled 
and  everyone  can  draw  on  them.  ; 

It  is  probably  in  the  long-term  best  I 
interest  of  most  businessmen  to  go  I 
along  with  these  guidelines,  frustrat  I 
ing  as  they  may  seem.  Why?  In  ex- 1 
change  for  their  cooperation — and  L 
money — they  get  to  market  the  re- 1 
suits  of  the  research  right  away.  Left  I 
to  their  own  devices,  university  pro- I 
fessors  agree  that  it  usually  takes  20 1 
years  from  the  time  an  idea  is  con- I 
ceived  until  its  introduction  in  the  I 
marketplace.  "There  is  no  question  1 
that  the  closer  business  ties  will  help  I 
reduce  this  delay,"  says  Washington  I 
University  Associate  Vice  Chancellor  I 
Edward  MacCordy. 

Tlhe  main  reason  for  the  delay,  of  I 
course,  is  that  professors,  as  a  rule,  T 
just  don't  have  any  marketing  exper- 1 
tise  and  don't  want  to  develop  any.  I 
Their  job,  they  say,  is  to  discover  If 
things  and  explain  what  they  have  I  j 
found.  Thomas  Tsakalakos  is  a  good  I 
example.  As  a  graduate  student  at  If 
Northwestern  in  the  mid-1970s,  Tsa-I' 
kalakos  wrote  his  dissertation  about  a  I 
new  process  that  would  improve  the|( 
stiffness  of  several  metal  alloys,  likelj 
aluminum  and  copper,  by  30%  to  l. 
50%.  If  commercially  feasible,  thej' 
idea  could  prove  important  to  the  1 1 
automotive  and  aircraft  industries,  I 
which  are  always  looking  for  ways  to<l , 
make  their  products  lighter  and  more  I 
fuel-efficient.    But    nothing  muchJ; 
came  of  Tsakalakos'  dissertation. 

Seven  years  later,  Tsakalakos,  now  I 
33   and   an  associate   professor  at  I 
Rutgers,  is  once  again  publishing  a  I 
paper  on  alloys.  This  time  the  response  I 
is  very  different:  "I  have  gotten  some- 1 
thing  like  50  letters  asking  for  more  I 
information."  Flattered  as  he  is  by  the 
attention,  Tsakalakos  would  rather 
talk  about  his  recent  trip  to  Africa, 
where  he  taught  material  science, 
than  talk  about  the  possible  commer- 
cial  application   of   his   discovery.  | 
"They  are  so  eager  to  learn,"  he  says. 

Is  there  a  more  efficient  way  to  en-  I 
sure  that  the  scientist  and  the  busi- 
nessman get  together?  What  about  a 
federal  research  clearinghouse,  for  ex-  I 
ample?  That  idea  is  flatly  dismissed  I 

Competing  robots 

In  a  laboratory  at  Rensselaer 
Polytechnic  Institute  in  Troy, 
N.Y.,  graduate  students  and  facul- 
ty members  are  working  to  develop 
a  sense  of  touch  in  robots  so  the 
robots  can  perform  inspection  du- 
ties. The  $60,000  project  is  funded 
by  General  Electric. 

Across  the  state  border  in  Pitts- 
burgh, Carnegie-Mellon  Universi- 
ty researchers  are  also  working  to 
create  robots  that  can  tell  the  dif- 
ference between  picking  up  a  brick 
and  picking  up  a  marshmallow. 
With  this  ability  robots  can  be  put 
to  work  placing  electrical  compo- 
nents on  a  printed  circuit  board. 
Westinghouse  has  poured  more 
than  $1  million  into  this  project. 

GE  and  Westinghouse,  two  com- 
panies that  have  competed  in  ev- 
erything from  light  bulbs  to  nucle- 
ar energy  systems,  are  now  com- 
peting in  the  development  of 
automation  systems  for  the  factory 
of  the  future.  And  each  company  is 
awarding  several  million  dollars' 
worth  of  research  contracts. 

Some  60  full-time  scientists  and 
engineers  staff  Carnegie-Mellon's 
three-year-old  Robotics  Institute, 
initially  sponsored  by  Westing- 
house, with  another  80  students 
and  faculty  members  working  part 
time.  The  11  labs  that  constitute 
the  $5  million-a-year  (contracts) 
center  conduct  research  in  all  areas 
of  automation,  from  walking  ro- 
bots (right  now  they  are  only  hop- 
ping), to  sensor  technologies  using 
lasers,  to  total  manufacturing  sys- 
tems. Two  Westinghouse  high-vol- 
ume factories — a  Baltimore  de- 
fense plant  and  a  North  Carolina 
turbine  plant— will  be  the  recipi- 
ents of  this  new  technology. 

Westinghouse  is  also  sending  its 
researchers  to  Carnegie-Mellon  to 
speed  implementation  of  the  tech- 
nology. "You  can't  just  supply 
money  to  a  university  and  expect 
to  come  out  with  a  manufacturing 
system,"  says  Tony  Massaro,  gen- 

eral manager  of  Westinghouse's  in- 
dustry automation  division.  "If 
you  want  to  go  directly  from  the 
idea  to  implementation,  there  has 
to  be  an  exchange  of  people." 

The  three-year-old  Rensselaer 
Center  for  Manufacturing  Produc- 
tivity and  Technology  Transfer, 
founded  with  seed  money  from 
GE,  operates  much  like  the  Carne- 
gie-Mellon center  does.  Conduct- 
ing similar  research,  the  Rensse- 
laer center  employs  eight  project 
engineers  with  master's  degrees 
and  industrial  experience  who  ride 
herd  over  the  students  and  faculty 
involved  in  the  projects. 

But  GE  is  using  the  center  differ- 
ently. "Rather  than  turn  the  uni- 
versity loose  and  say,  'Have  at  us,' 
we've  been  much  more  prescrip- 
tive in  terms  of  what  we  think  we 
could  use  right  now,"  says  George 
Kuper  of  GE.  For  example,  a  recent 
project  developed  the  use  of  ultra- 
sonics in  measuring  the  elongation 
of  bolts.  GE  then  puts  the  pieces  of 
new  technology  to  use  in  a  factory 
system  designed  in-house. 

Why  contract  a  university  to  do 
the  research?  To  use  the  universi- 
ty's expertise  and  to  screen  future 
employee  prospects.  Kuper  also 
says,  "It  looked  to  us  like  this  was 
one  way  of  raising  the  level  of  in- 
terest among  faculty  in  shop  floor 

Tressa  Stratman,  coordinator  of 
industrial  relations  for  Carnegie- 
Mellon,  says  there  has  been  in- 
creased pressure  from  corporations 
on  campus,  and  some  correspond- 
ing resistance  from  the  university. 
Still,  Stratman  adds  a  bit  more 
pragmatically,  "If  it  were  not  for 
industry,  we  would  not  have  a  test 
bed  for  a  lot  of  the  research  tech- 
nology coming  out  of  the  institute. 
And  without  that  test  bed,  we  may 
be  pursuing  pipe  dreams.  And  no 
research  institute  can  survive  sole- 
ly by  pursuing  interesting  research 
problems."— Laura  Rohmann 

FORBES,  OCTOBER  11,  1982 

25%  of  all  the  oil  and  gas  the  world  uses  comes  through 
our  equipment. 

C-E  equipment  helps  find  it, 
drill  for  it,extract  it,  prepare  it 
for  the  pipeline,  process  it, 
move  it,  and  refine  it. 

All  over  the  world,  Combustion 
.Engineering  and  its  companies 
tare  helping  to  meet  the  continu- 
ing need  for  oil  and  gas. 

In  dozens  of  countries,  C-E 
INatco  equipment  helps  prepare 
oil  and  gas  for  the  pipeline.  C-E 
I  Crest  has  designed  systems  that 
produce  10  million  barrels  of  oil 
a  day.  Vetco  Offshore,  another 
C-E  company,  provides  systems 
'that  are  found  in  every  offshore 
i producing  area  of  the  world. 

For  the  Arabian  American 
Oil  Company  (ARAMCO),  C-E 
Lummus  engineered  and  pro- 
vided overall  project  manage- 
ment for  the  world's  largest 
modular  construction  project: 

over  30  giant  desalting  units 
spread  across  5,000  square 
miles  in  eastern  Saudi  Arabia, 
with  a  total  desalting  capacity  of 
over  six  million  barrels  per  day. 

C-E:  World  leader  in 
energy  technology. 

We're  helping  to  find  and  bring 
in  oil  and  gas.  Upgrading  and 
building  refineries  and  petro- 
chemical plants.  Developing 
cleaner,  more  efficient  ways 
electric  utilities  and  other  indus- 
tries can  use  coal.  Providing 
equipment  and  services  for  nu- 
clear power  generation.  Supply- 
ing a  wide  range  of  mineral-based 
products  to  paper,  steel  and  alum- 
inum producers.  And  leading 
the  way  in  the  development  of 
alternative  fuels. 

For  more  information  about 

our  diverse  lines  of  business, 
and  a  five-year  summary  of  our 
Financial  Highlights,  write  Com- 
bustion Engineering,  Inc. ,  Dept. 
7004-241,  900  Long  Ridge  Road, 
Stamford,  CT,  USA  06902. 


The  Energy  Systems  Company 

by  President  Reagan's  science  advis- 
er George  A.  Keyworth  II.  "We 
would  make  a  mess  of  it,"  he  says 
candidly.  "Every  time  the  govern- 
ment tries  to  enter  the  private  sector 
to  spur  research,  it  has  laid  an  egg. 
All  you  have  to  do  is  look  at  the 
synfuel  program." 

The  problem  may  take  care  of  itself. 
As  more  corporations  fund  academic 
research,  fixed  patterns  of  communi- 
cations should  develop.  To  make  the 
process  even  easier,  faculty  and  gradu- 

ate students  might  be  encouraged  to 
work  more  closely  with  corporations 
through  more  extensive  use  of  sabbat- 
icals and  work/study  programs. 

Meanwhile,  industry  is  becoming 
more  sensitive  to  the  needs  of  acade- 
mia.  Says  Emil  Sarpa,  corporate  man- 
ager of  academic  relations  for  Intel: 
"With  the  federal  government  and 
other  sponsors  backing  off,  the  whole 
future  of  basic  research  is  in  jeopardy. 
If  everyone  took  the  position  that 
they  were  only  going  to  do  the  type  of 

Numbers  Game 

How  much  need  banks  tell  their  sharehold- 
ers about  offshore  loan  exposure? 


By  Richard  Greene 


ankAmerica  concedes 
1  that  its  loan  exposure  in 
Mexico  equals  60%  of  its 
stockholder  equity,  but  the 
latest  BankAmerica  annual 
report  doesn't  even  mention 
that  country's  name.  Bank- 
America  simply  breaks 
down  its  overseas  oper- 
ations into  four  parts:  Asia; 
Europe,  Middle  East  and  Af- 
rica; Latin  America  and  the 
Caribbean;  and  North 

Citicorp,  which  reported- 
ly has  some  $2.5  billion  of 
loans  outstanding  to  Mexi- 
co— 2%  of  assets  and  58%  of 
stockholders'  equity — sim- 
ply divides  the  world  into 
four  different  components: 
North  America;  Caribbean, 
Central  and  South  America; 
Europe;  and  Asia,  Australia, 
the  Middle  East  and  Africa. 

The  SEC  merely  requires 
that  banks  break  down  their 
foreign  operations  as  they 

research  that  related  directly  to  their 
own  immediate  needs,  then  basic  re- 
search would  dry  up." 

"We  don't  expect  to  see  industry 
making  a  contribution  to  academe 
that  displaces  the  role  of  the  federal  I 
government,"  Keyworth  says.  "This 
is  not  the  objective.  The  objective  is 
to  bring  academe  to  focus  upon  the 
problems  that  are  dominant  today. 
The  problem  is  taking  our  technolo- 
gy, the  new  science,  into  our  industry 
as  rapidly  as  we  possibly  can.  ■ 

deem  appropriate.  The  only  regulation 
is  that  they  must  separate  "geographic 
areas"  in  which  they  have  over  10%  of: 
assets,  revenues  or  income.  As  a  result, 
with  few  exceptions,  banks  do  not] 
mention  the  names  of  individual  coun- 
tries. (A  notable  exception  is  Citi-J 
bank's  reference  to  Brazil,  where  it  had 
almost  $5  billion  in  assets.) 

Nobody  cares  about  this  kind  of 
disclosure  until  there's  a  major  crisis 
someplace,  as  there  has  been  recently 
in  Iran,  Poland  and  now  Mexico. 

Many  bank  accountants  oppose 
more  specific  overseas  loan  break- 
downs, however.  They  suspect  inves- 
tors might  misinterpret  the  new  infor- 
mation. When  the  news  of  Mexico  was 
first  breaking,  Manufacturers  Hanovei 
was  in  the  unfortunate  position  oi 
having  disclosed  its  $1.4  billion  expo- 
sure in  its  10-K. 

Soon  after  the  day  the) 
news  about  Mexico's  second 
devaluation  struck,  Manu- 
facturers' stock  dropped  b> 
three  points  and  spread  in- 
vestor fear.  But,  within  i 
day,  investors  realized  that 
Manufacturers'  exposure  in 
Mexico  was  not  out  of  line 
with  other  major  banks. 

In  such  an  emotional  ares 
as  foreign  loans,  the  bant 
accountants  fear  disclosing 
country-by-country  infor 
mation  that  might  lead  tc 
worse  panics.  They  ma} 
have  a  point.  They  alsfl 
argue  that  segregation  carj 
be  carried  too  far.  If  yoi 
name  individual  countries 
can  individuals  or  compa 
nies  be  far  behind?  Bu 
there's  also  a  strong  argu 
ment  for  more  disclosure 
Loans  to  countries  repre 
sent  a  huge  portion  o 
many  banks'  portfolios — sq 
large  that  they  woulo 
g£p  threaten  the  entire  bank': 
—     future  if  endangered.  ■ 


FORBES,  OCTOBER  11,  1982 

grj  a 
Mi  •■  * 

Go/d  Starr  of  America  Inc., 
a  member  of  The  Lucky 
P  Group,  announces  the  opening 
■y  o/ /?s  new  co/or  7"K  factory  in 
Huntsville,  Alabama. 

y  -jars  ■' :  «■ 
-    V ■  .\v\Mi 

v.  ,M 

This  year  marks  the  centennial  of 

diplomatic  relations  between  S-*.S|^^MK» .... 

the  United  States  and  the  Republic  'VwiHjfi^^^Wi'i 
of  Korea.      '  v  " 

mm  i 

Ringing  Out  the  News  of 
Business  Friendships  that  Really  Work 

One  important  part  of  The  Lucky  Group's  35 -year 
tradition  is  making  mutually  beneficial  business 
partnerships  that  really  work.  This  includes  more 
than  a  dozen  of  Korea's  most  highly  successful  joint 
ventures  and  technical  tie-ups,  and  now  it  extends 
to  investment  overseas  in  new  manufacturing 

Through  its  work  in  chemicals,  semiconductors 
and  computers,  electronics  and  communications, 
energy  and  resources,  insurance  and  securities,  and 
public  services,  The  Lucky  Group  has  rung  up  a 
fine  record  of  growth,  a  good  indication  of  how 

well  our  programs  of  cooperation— and  research 
and  development  —  are  doing. 

Keep  listening  and  you'll  hear  more  of  The 
Lucky  Group  ringing  out  the  great  changes  that 
are  coming  to  the  industries  of  not  only  Korea  but 
the  world. 

For  more  information  contact  our  trading 
house,  Bando  Sangsa  Co. ,  Ltd.  ,  537  Namdaemun- 
ro  5-ga,  CPO  Box  1899,  Jung-gu,  Seoul  100, 
Korea.  Phone:  771-32,  Cable:  FOURCLOVER 
SEOUL,  Telex  K27266,  K27470. 

fy\f^\  Transforming  dreams  into  reality 


□  Lucky,  Ltd.  DBandoSangsa  DGold  Star  Go.,  Ltd.  DGold  Star  Cable  DLucky  Continental  Carbon  DGold  Star  Tele-Electric  DLucky  Development  DGold  Star 
Electric  DHee  Sung  DLucky  Securities  DGold  Star  Instrument  &  Electric  DGold  Star  Precision  Industries  DLucky  Engineering  DShinyeong  Electric  DGold  Star 
Semiconductor  DHonam  Oil  Refinery  DKorea  Mining  &  Smelting  DPan  Korea  Insurance  DGold  Star  Alps  DThe  Yonam  Foundation  DThe  Yonam  Educating!  Institute 

Change  can  be  swift  or  gradual.  But  either  way,  it  is 
inevitable.  Sometimes  the  results  fall  into  the  realm  of  the 
spectacular.  Other  times,  change  is  simply  the  process  of 
getting  better  or  enduring  where  others  falter. 

Behind  me  is  ore  magnificent  example  of  what  change 
can  achieve.  Before  me  :s  another.  Today,  after  many  success- 
ful decades  of  change,  The  Greyhound  Corporation  is  in  the 

best  and  strongest  financial  condition  in  its  history. 

The  prospect  of  leading  this  major  corporation 
the  coming  years  is  one  I  find  exhilarating.  We're  builc 
the  best  of  the  past  and  present  and  going  whereve 
structive  change  can  take  us. 

My  objectives  as  chairman  and  chief  executiv* 
are  not  just  growth,  but  quality  growth;  not  just  profital 

ome  things  are  timeless . . ." 

W.  Teets 

tan  of  the  Board  and  Chief  Executive  Officer 
eyhound  Corporation 

3  profitability.  The  process  of  change  and  diversifica- 
t  Greyhound  has  benefited  from  in  the  past  is  more  than 
■irable.  It  is  absolutely  essential.  Because  no  matter 
od  things  are  today,  we  nevertheless  cannot  be  content 
ontinuation  of  things  as  they  are.  We  have  in  our  grasp 
ity  to  shape  our  own  destiny .  .  to  challenge  the  future 
e  than  that,  we  have  the  will  to  make  it  happen! 

The  Greyhound  Corporation 

A  company  for  the  eighties. 


It  takes  a  lot  of  computing  power  to  make 
airline  reservations  or  get  money  from  an 
automated  teller.  Its  also  very  lucrative. 

Tracking  profits 

By  Anne  Field 

F|  OR  ALL  THE  BALLYHOO  about 
personal  computers,  there  are 
still  plenty  of  organizations 
around  whose  computer  needs  run 
toward  the  leviathan.  Airlines  and 
banks,  for  example,  both  need  a  com- 
bination of  high  speed,  high  reliability 
and  large  capacity  in  their  computers; 
how  else  to  handle  millions  of  check- 
ing transactions  a  day,  or  allow  thou- 
sands of  travel  agents  all  over  the 
country  to  fill  seats  on  planes  jetting 
all  over  the  world? 

For  almost  20  years,  such  tasks 
were  handled  by  large  mainframe 
computers,  and  a  technique  known  as 
batch  processing. 

In  batch  processing,  the  computer's 
memory  was  updated  only  on  a  daily 
basis;  all  transactions  made  during 
the  day  would  be  held  and  then  pro- 
cessed together  after  the  bank  or  air- 
line closed  for  business.  Not  a  bad 
system,  but  your  information  was  al- 
ways a  day  old.  That's  why  banks 
could  only  allow  you  to  cash  checks 
and  make  withdrawals  at  your  own 
branch.  Other  branches  always  had 
stale  account  information. 

But  in  1974  Tandem  Corp.  decided 
that  minicomputers  could  do  the 
same  job  as  the  mainframes  the  air- 
lines and  banks  were  using,  but  at  a 
major  saving  in  response  time  and  a 
considerable  saving  in  cost.  Tandem 
linked  together  separate  processors, 
each  with  its  own  memory.  The  link 
was  a  device  that  allowed  high-speed 
intercommunication  from  processor 
to  processor.  This  device  is  called  a 
data  bus — no,  not  a  database  but  a 
data  bus.  The  bus  transfers  data  effi- 
ciently from  one  computer  to  an- 
other, and  provides  a  path  through 
which  data  can  flow  in  case  one  of  the 
machines  fails. 

In  addition  to  high  reliability — 
Tandem  calls  its  system  a  NonStop 
system — the  data  bus  also  allows  you 
to  update  information  on  a  more  con- 
stant basis.  While  one  computer  is 
busily  handling  a  transaction,  the 
other  computer's  memory  is  updated 
almost  instantaneously.  This  trans- 
action tracking  system  provides 
much  more  up-to-date  information, 
and  has  allowed  banks  to  offer  such 
popular  services  as  automatic  teller 
machines  with  a  greater  precision 
and  at  a  lower  cost. 

When  you  insert  your  plastic  card 
into  the  bank-teller  machine,  the  cen- 
tral computer  sends  your  account  file 
to  the  terminal's  memory;  the  termi- 
nal performs  the  transaction,  updates 
the  account  file  and  sends  it  back  to 
the  central  computer.  Prior  to  the  data 
bus,  moving  files  back  and  forth  was  a 
slower  and  more  expensive  process. 
This  updated,  more  rapid  version  of 
batch  processing  is  called  transaction 

For  six  years,  Tandem  alone  ruled 
transaction  processing  and  built  its 
sales  to  some  $300  million  today.  But 
if  the  minicomputer  gave  Tandem  an 
edge  over  mainframe  manufacturers, 
the  microprocessor  chip  provided  an 
equal  edge  to  companies  that  wanted 
to  grab  a  piece  of  the  transaction-pro- 
cessing market.  With  a  $50  chip,  says 
Nicholas  Bologna,  director  of  product 
marketing  of  Stratus  Computer,  Inc., 
of  Natick,  Mass.,  a  maker  of  comput- 
ers used  primarily  for  transaction  pro- 
cessing, you  can  pack  the  power  of 
several  thousands  of  dollars'  worth  of 
machinery  available  in  the  Seventies. 
A  single  minicomputer  now  has  the 
memory  of  a  large  mainframe. 

That  fact  helped  spawn  a  couple  of 
lively  new  companies:  Synapse — 
whose  management  team  comes 
from  places  like  Data  General  and 

Edited  by  Stephen  Kindel 

Bell  Labs,  and  whose  venture  capital 
comes  from,  among  others,  Jesse 
Aweida  of  Storage  Technology  Corp.; 
and  Stratus — whose  founders  come 
from  Data  General  and  Hewlett- 
Packard  and  whose  financing  comes 
from  the  likes  of  Olivetti,  Ham- 
brecht  &  Quist  and  General  Elec- 
tee's Business  Development  Services 

Both  companies  take  advantage  of 
the  new  sophistication  of  micropro- 
cessors. Synapse's  approach  is  prob- 
ably more  technologically  elegant. 
The  Stratus  computer  does  exactly 
what  a  Tandem  NonStop  system 
does,  but  with  a  much  smaller  and 
cheaper  piece  of  equipment  than  a 
minicomputer,  though  each  still  has  a 
memory  device. 

Synapse  took  the  approach  that  it 
didn't  make  sense  to  have  separate 
processors  with  separate  memories. 
The  reason,  according  to  Synapse 
President  Mark  Leslie,  is  that  the 
greater  the  number  of  processors  on  a 
system,  the  greater  the  probability 
that  any  given  processor  won't  have 
the  information  you  need  in  its  mem- 
ory, and  that  your  request  will  have  to 
travel  out  over  the  bus  from  one  pro- 
cessor to  another  until  the  requisite 
piece  of  information  is  found.  With 
such  a  system,  says  Leslie,  you  may 
get  a  lot  of  reliability,  but  your  trans- 
action speed  will  slow  down  as  the 
number  of  transactions  increases.  Re- 
member that  when  you  go  to  your 
nearest  bank  to  buy  traveler's  checks 
and  the  NOW  account  line  is  moving, 
twice  as  fast  as  yours. 

Instead  of  a  memory  with  each  pro- 
cessor, the  Synapse  computer  has  a 
single  memory  and  data  buses  that 
can  move  information  back  and  forth 
between  memory  and  processors  atl 
the  blinding  rate  of  64  million  bytes 
per  second;  competitive  machines, 
says  Synapse  product  marketing  man- 
ager Kenneth  Cohen,  have  a  maxi- 
mum bus  speed  of  26  million  bytes 
per  second. 

What  the  terminals  lack  in  memory 
capacity  they  more  than  make  up  in 
speed.  To  provide  reliability,  Synapse 
computers  have  a  spare  processor, 
which  takes  over  should  any  given 
processor  break  down.  "Our  approach 
is  like  having  one  spare  tire  to  back  up 
four,"  says  Leslie.  Tandem's  backup, 
the  second  processor  with  its  own 
memory,  will  operate  at  a  slower 


FORBES,  OCTOBER  11,  1982 

)eed  if  forced  to  perform  transac- 
ons  alone. 

Synapse  and  Stratus  will  most  prob- 
?ly  become  rich.  What  about  Tan- 
=m?  There's  more  than  enough  busi- 
ess  for  everyone.  Omri  Serlin  of 
POM  International,  a  Los  Altos,  Cal- 
.  computer  research  firm,  thinks 
lat  more  and  more  companies  will 
imp  into  on-line  transaction  process- 
ig  without  spoiling  it  for  the  current 
ltrants.  Although  Serlin  predicts 
lat,  by  1986,  Tandem  will  have  lost 
5%  of  its  current  market  share,  rev- 
lues  will  be  topping  $2  billion,  a 

sales  growth  of  more  than  550%  for 
Tandem.  "The  real  question,"  he 
says,  "is  not  how  much  competition 
there  is,  but  how  fast  each  company 
will  be  able  to  grow." 

Synapse's  Kenneth  Cohen  happily 
agrees:  "Transaction  processing  has 
become  an  inherent  part  of  a  com- 
pany's ability  to  get  and  keep  new 
customers,"  he  says.  "Just  look  at 
automatic-teller  machines."  Anyone 
who  has  ever  waited  in  a  long  line  at 
the  bank— as  most  of  us  have — would 
only  add  to  that:  Amen. 


When  Congress  passed  the  Coal  Mine 
Safety  and  Health  Act  13  years  ago,  it 
decreed,  among  other  things,  that 
each  miner  working  underground 
must  be  equipped  with  his  or  her  own 
emergency  oxygen  for  at  least  an 
hour.  Such  legislation  ordinarily 
would  have  meant  a  nice  windfall  for 
the  companies  most  involved  with 
mine  safety,  principally  venerable 
Pittsburgh-based  Mine  Safety  Appli- 
ances Co.  and  National  Mine  Service 
Co.  Instead,  a  much  smaller  firm, 
Ocenco  Inc.,  has  walked  off  with 
roughly  75%  of  the  contracts  award- 
ed, and  stands  to  be  the  major  benefi- 
ciary of  a  market  for  breathers  that 
will  produce  $40  million  in  first-time 
sales  with  the  prospect  of  strong  re- 
newals down  the  road. 

How  come?  Says  Sam  Terry,  chief 
of  the  Respirator  Section  of  the  gov- 
ernment's National  Institute  for  Oc- 
cupational Safety  and  Health: 
"Ocenco  did  its  homework."  The  big 
companies,  Mine  Safety  Appliances 
and  National  Mine  Service,  decided 
on  a  technology  that  the  mine  owners 
didn't  like — a  device  using  potassium 
superoxide  (KO,),  which  reacts  with 
carbon  dioxide  from  a  person's  breath 
to  form  fresh  oxygen. 

Trouble  is,  KO,  can  become  flam- 
mable if  it  mixes  with  moisture  in  the 
air,  a  problem  that  can  result  from  a 
leaky  container.  When  KO,  units 
were  first  tested,  they  were  consis- 
tently unable  to  stand  up  to  govern- 
ment tests.  Yet,  instead  of  switching 
to  a  new  design,  the  engineers  who 
were  developing  the  equipment—and 
the  United  Mine  Workers  of  America, 
which  was  consulted  in  the  process — 
all  stood  steadfastly,  perhaps  even 
stubbornly,  by  the  KO,  breathers. 

As  a  consequence,  industry  insisted 
on  an  exhaustive  series  of  tests.  They 
were  still  under  way  in  1977,  when 
yet  another  mine  safety  bill  was 
passed.  This  one  authorized  the  gov- 
ernment to  require  distribution  of  un- 
derground breathing  equipment  by 
the  end  of  1980. 

As  the  date  for  compliance  ap- 
proached, it  became  obvious  that  not 
enough  breathers  could  be  produced 
by  either  Mine  Safety  Appliances  or 
National  Mine  Service  to  allow  mine 
owners  to  comply  with  the  law,  even 
if  the  devices  passed  the  tests. 

By  this  time,  the  government  was 
demanding  the  mines  enter  purchase 
orders  for  the  proper  number  of 
breathers  by  the  end  of  June  1981.  But 
some  mining  companies  wouldn't 

Memories  are  made  of  this 

Tandem's  approach  to  transaction  may  not  have  the  data  you  need, 
processing,  though  faster  than  batch  Synapse,  by  changing  the  design  to  a 
processing,  has  a  flaw:  the  more  single  memory,  with  multiple  pro- 
transactions,  the  slower  the  speed,  cessors,  allows  more  transactions  to 
because  the  CPU  you  are  querying  take  place  simultaneously. 

Tandem  system 

Interprocessor  bus 
















I  Request 

Retrieved  information 
Formatted  information 

IOP:  input-output  processor 
CPU:  central  processing  unit 
GPP:  general  purpose  processor 


Synapse  system 

Shared  memory 






3RBES,  OCTOBER  11,  1982 


- .  its" 



fe  refuel  jets  in  the  air 

lev're  sitting  on  the  Ground. 

hiletl,,  .0  0---_- 

That's  Singer  technology. 

Everything  appears  real —the  tanker,  the  instruments, 
the  air  turbulence.  But  what  you're  experiencing  isn't 
real  at  all. 

It's  called  simulation  — a  technology  in  which  our 
Link  Flight  Simulation  Division  has  been  the  leader  for 
more  than  50  years.  Today,  by  combining  computers, 
lasers,  and  other  electronic  systems,  Link  simulators 
are  training  pilots  of  sophisticated  commercial  and 
military  aircraft,  helicopters,  even  the  Space  Shuttle. 
And  helping  them  fly  practice  missions  without  risk  to 
life,  wear  and  tear  on  equipment,  or  burning  costly 

fuel.  Now,  Link  is  developing  even  more  advances 
technology  for  the  next  generation  of  aircraft. 

Through  expanding  research  and  development 
electronic-based  simulation,  guidance,  communii 
tions,  and  specialized  computer  systems,  Singer  is 
ing  a  new  chapter  in  its  corporate  history.  Togethe 
with  our  unique  consumer  durables  capabilities 
throughout  the  world,  this  technological  base  poa 
tions  us  in  important  growth  markets  of  today  an 
tomorrow.  The  Singer  Company,  8  Stamford  Forui 
Stamford,  CT  06904. 


Two  flawed  designs 

While  the  purpose  of  oxygen  breathers  is  to  provide  The  other  unit  (right)  uses  actual  bottled  oxygen.  But 

miners  a  safety  margin,  both  devices  have  problems,  oxygen  can  leak  from  valves  (1)  or  (2),  and  any  problem 

The  K02  device  (left)  creates  oxygen  chemically  (1),  but  with  the  pressure  gauge  (3)  will  give  a  wrong  reading  in 

the  K02  can  mix  with  moisture  in  the  air  and  ignite.  If  the  oxygen  cylinder.  Too  much  pressure  can  cause  an 

valves  (2),  (3)  are  defective,  the  chemical  can  also  leak,  explosion;  too  little,  and  no  oxygen  is  delivered. 

Some  Ocenco  competitors  and  min- 
ing industry  observers  believe  Ocenco 
can't  hold  its  beachhead  for  long.  Tom 
Bethel,  a  consultant  who  has  followed 
the  breather  issue  for  over  a  decade  on 
behalf  of  the  United  Mine  Workers) 
union,  says,  "They  copied  pretty  free- 
ly from  a  Polish  unit  [Poland  has  one 
of  the  most  advanced  mine  safety  pro- 
grams in  the  world).  Ocenco  didn't 
invent  it  from  scratch  by  any  stretch] 
of  the  imagination."  Ocenco's  com- 
petitors complain  that  government 
tests  on  bottled  oxygen  units  were  not 
as  rigorous  as  those  designed  for  the 
KO,  devices,  and  they  point  out  that 
Ocenco  has  chosen  to  recall  5,000  to 
6,000  devices  shipped  just  this  past 

Yet  that  all  may  be  just  sour  grapes. 
Little  Ocenco  now  dominates  a  field 
in  which  it  had  no  prior  expertise. 
Running  the  regulatory  maze  may  be  | 
frustrating;  but  the  payoff  can  sure  be| 
nice. — A.F. 


take  delivery  of  their  KO,  breathers. 
Sensing  a  monumental  stonewall 
abuilding,  the  Mine  Safety  &  Health 
Administration  bureaucrats  threat- 
ened to  fine  mine  owners  if  they 
didn't  produce  delivery  schedules. 

But  what  about  Ocenco?  Headquar- 
tered outside  Chicago,  its  business 
had  largely  been  in  mine  illumination 
equipment,  but  it  saw  an  opportunity 
in  the  decade-long  controversy.  While 
it  had  never  attempted  to  make  a 
breathing  unit,  the  company  found 
out  what  the  mining  industry  wanted: 
a  light,  easy-to-inspect  unit.  Bottled 
oxygen  fit  the  bill. 

Now  to  find  out  what  the  govern- 
ment wanted.  Ocenco  President  Pat 
Droppeiman  and  his  engineers 
trooped  down  to  West  Virginia  to 

meet  with  NIOSH  officials.  Their 
purpose  was  to  see  the  testing  facili- 
ties and  ascertain  what  tests  their 
model  would  have  to  face.  Within  six 
weeks  of  submitting  its  model  for 
testing,  Ocenco  had  passed  with 
flying  colors.  And  Ocenco  got  the 
NIOSH  okay  on  the  first  go-around. 
With  MSHA  by  then  breathing  down 
the  mine  owners'  necks,  75%  of  them 
immediately  ordered  the  Ocenco 

Ocenco  is  now  churning  out  8,000 
devices  a  month,  and  since  the  breath- 
ers may  have  to  be  replaced  every 
three  years  or  so,  Droppeiman  fore- 
sees a  steadily  growing  market.  At 
almost  $500  per  unit,  sales  of  the  bot- 
tled oxygen  devices  will  give  a  big 
boost  to  Ocenco's  current  $30  million 
in  sales.  That  figure  could  rise  still 
further  if,  as -Droppeiman  predicts,  de- 
mand for  the  breathers  develops 
abroad.  "Russia,  Poland,  most  of  the 
Common  Market  countries  could  use 
them,"  he  claims. 


FORBES,  OCTOBER  11,  1982 

The  Bell  System  is  giving 
American  orchestras  a  hand. 


Edited  by  William  G.  Flanagan 

Hardware  helpers 

who  buys  and 


Fl  or  anyone 
stocks  regularly,  there  is  a 
dening  Catch  22  about  market  activ- 
ity. When  the  market  is  quiet,  your 
broker  will  tell  you  more  than  you 
want  to  know.  But  when  it  is  hopping, 
as  it  has  been  of  late,  you  will  be  lucky 
to  get  through  to  him  just  for  quotes 
on  your  holdings.  You  could  easily 
miss  key  information — not  being  in- 
formed, for  example,  that  Gulf  pulled 
out  of  the  Cities  Service  deal.  This  is 
especially  true  if  you  use  a  discount 
broker  exclusively. 

In  this  electronic  era  (see  p.  181), 
information  gaps  get  plugged  very 
quickly.  Here  is  a  rundown  on  some 
of  the  various  hardware  and  market 
services  of  interest  to  the  active  trader 
and  stockbroker. 

Pocket  Quote.  This  new  device  is 
ideal  for  the  moderate  or  light 
trader  who  likes  to  keep  fairly 
close  tabs  on  his  portfolio,  but 
hates  to  bug  his  broker — or 
who  uses  a  discount  broker 
whom  he  cannot  bug.  The  ma- 
chine weighs  about  11  ounces 
and  is  about  the  size  of  a  paper- 
back book.  Basically,  it  is  an 
FM  radio  receiver  with  a  small 
digital  display  window,  akin  to 
a  calculator.  You  can  get 
quotes— 15  minutes  later  than 
actual  floor  trading — on  all 
stocks,  and  monitor  a  portfolio 
of  20  selected  stocks  or  options 
(NYSE,  Amex  or  o-t-c)  by 
punching  up  the  symbol.  You 
can  also  reprogram  the  20 
monitored  equities  as  needed. 

What's  more,  the  receiver 
will  give  off  audible  beeps 
whenever  important  news  oc- 
curs relating  to  any  of  your  20 
monitored  stocks.  The  screen 
will  show  the  stock's  symbol 
and  a  flashing  light,  so  you  can 
call  your  broker  or  some  other 
source  immediately  to  find  out 
what  is  happening. 

The  Pocket  Quote,  devel- 
oped by  37-year-old  Fred  Par- 
sons, can  run  on  batteries  or 
ordinary  AC  current,  and  is 
portable.  The  unit  itself  costs 
$299,  plus  $19.75  per  month. 

That's  tax  deductible,  of  course,  as  are 
any  information  aids  used  in  manag- 
ing your  investments. 

At  present,  Pocket  Quote  is  avail- 
able only  in  the  New  York  City  area, 
but  will  soon  be  available  in  Chicago, 
Los  Angeles,  Boston,  Washington  and 
Miami.  The  database  for  Pocket 
Quote  is.  Telemet  America,  401 
Wythe  St.,  Alexandria,  Va.  22314 
(703-548-2042).  Note:  Since  the  "car- 
rier" is  an  FM  band,  the  range  of  the 
device  is  about  50  miles  from  the  cen- 
tral transmitter.  But  you  never  pay 
telephone  line  charges. 

For  the  more  serious  investor,  or 
the  broker  who  works  at  home,  there 
is  Quotron  VuSet.  This  desktop  unit 
consists  of  a  keyboard  and  a  terminal 
a  bit  larger  than  a  telephone,  which  is 
wired  to  Quotron's  database.  Punch 
up  any  stock  listed  on  the  NYSE, 
Amex  or  o-t-c  exchanges  and  you  get 
the  latest  sale  (or  bid  and  asked),  the 
daily  low,  high,  net  change,  volume 
and  time  of  the  last  trade.  If  any  news 
item  about  the  stock  has  run  during 
the  day  on  either  the  Dow  Jones  or 
Reuters  wire,  the  time  it  ran  will  also 
be  shown. 

VuSet  customers  can  also  use  the 
terminal  to  get  lists  of  the  most  active 
stocks  on  the  various  exchanges,  divi- 

Pocket  Quote  inventor  Fred  Parsons 
Get  one  and  stop  bugging  your  broker. 

dend  and  earnings  information  on  in- 
dividual issues  and  other  market  data. 

The  basic  price  of  the  service  is 
$260  per  month,  but  there  are  plenty 
of  extras,  depending  upon  the  services 
you  want.  NYSE  last  sale  runs  an  ex- 
tra $70  per  month,  for  example;  Amex 
last  sale  is  $12  monthly;  options 
quotes  run  another  $45.  There  is  also 
a  one-time  $300  installation  fee. 
Phone  charges  are  included  in  the  Vu- 
Set's  basic  cost.  For  information  con- 
tact Quotron  Systems,  5454  Beetho- 
ven St.,  Los  Angeles,  Calif.  90066 

Bunker  Ramo's  Telequote  III  is  an- 
other desktop  unit,  long  popular  with 
brokers.  Keyboard  and  display  are 
contained  in  one  unit  roughly  the  size 
of  a  manual  typewriter.  Basic  data  re- 
ceived from  exchanges  (no  15-minute 
delay)  includes  prices  on  all  Big  Board 
and  Amex  stocks,  plus  commodities, 
mutual  funds,  o-t-c  issues  and  other 
market  information.  Other  more  so- 
phisticated systems  are  available. 

Basic  service  is  $425  per  month, 
plus  exchange  fees;  the  cost  is  much 
higher  to  distant  subscribers.  Infor- 
mation: Bunker  Ramo  Information 
Systems,  35  Nutmeg  Dr.,  Trumbull, 
Conn.  06609  (203-386-2000). 
Telerate  is  a  two-piece  system  con- 
sisting of  a  keyboard  and  a  ter- 
minal about  the  size  of  most 
personal  computers.  The  page- 
sized  screen  has  room  for 
much  more  information  than 
either  the  Telequote  or  VuSet 

Most  Telerate  subscribers 
use  the  service  primarily  for 
up-to-date  information  about 
nonstock  investments,  includ- 
ing bonds,  government  securi- 
ties and  commercial  paper,  as 
well  as  current  data  on  inter- 
est rates,  international  money 
rates,  futures  and  a  host  of  oth- 
er things. 

Several  financial  news  ser- 
vices are  also  available 
through  Telerate,  including 
the  Bond  Buyer  wire,  the  Dow 
lones  Capital  Markets  Report 
and  Dow  Jones'  international 
wires.  These  services  can  be 
watched  on  a  six-line  "win- 
dow" at  the  bottom  of  the  Te- 
lerate monitor  without  inter- 
fering with  the  user's  ability  to 
request  and  receive  other  in- 
formation elsewhere  on  the 

The  base  price  is  $540  a 
month,  which  can  be  steeply 
higher  if  many  optional  ser- 
vices are  used.  (These  also  in- 
clude stock  and  option  quotes, 


FORBES,  OCTOBER  11,  1982 

America's  strongest  big  bank  is  not  headquartered  in  Chicago.  Of  the  country  s 
50  largest  banks,  AmenTrust  is  first  in  the  ratio  of  equity  to  assets.  That  s  the  ki 
of  management  that  can  make  a  real  difference  when  you  need  a  strong  financial 
partner.  AmenTrust,  Cleveland,  Ohio. 

Citibank  Vice  President  Jim  Wiseman  at  his  Telerate 

Monitoring  financial  news  and  up-to-the-minute  interest  rates. 

analytical  services  and  S&P's  com- 
mercial paper  ratings.)  There  is  also 
an  installation  fee  of  several  hundred 
dollars.  Information:  Telerate  Sys- 
tems, One  World  Trade  Center,  New 
York,  N.Y.  10048  (212-938-5200). 

DowAlert  is  not  a  stock  quotation 
service  but  a  private  radio  report  from 
Dow  Jones.  Signals  are  broadcast  via 
satellite  from  DowAlert's  studio  in 
Princeton,  N.J.  (The  service  is  now 
available  only  in  Boston,  Philadelphia 
and  New  York;  it  will  expand  into  the 
top  40  markets  next  year  or  so.) 

Each  subscriber  receives  Dow- 
Alert's  new  reports  on  a  receiver 
about  the  size  of  a  telephone.  The 
customer  punches  in  a  four-digit  code 
for  each  news  category  in  which  he  is 
interested,  and  only  those  radio 
broadcasts  are  aired.  Sample  categor- 
ies: the  aerospace  industry,  inflation, 
gaming  equipment.  At  other  times 
the  receiver  remains  on,  but  is  silent. 

When  the  subscriber  is  away  from 
the  receiver,  DowAlert  automatically 
tapes  all  coded  news  segments  that 
air.  These  can  be  played  back,  either 
on  the  machine  itself  or  on  a  standard 
cassette  tape  recorder. 

After  an  initial  fee  of  $150,  the 
monthly  service  cost  is  $50.  Informa- 
tion: Dow  Jones  Radio  2,  Box  300, 
Princeton,  N.J.  08540  (800-257-0437). 

If  you  have  your  own  personal  com- 
puter, you  might  consider  plugging 
into  the  Dow  Jones  News/Retrieval 
Service.  A  wealth  of  business-related 
and  other  information  is  available, 
from  stock  and  bond  quotes  to  general 
news  stories  to  baseball  scores  and 
weather  reports.  Over  100  different 
kinds  of  terminals  can  access  the  ser- 
vice, via  telephone  lines,  including 

You  could  stay  healthy 

Y'ou  have  probably  heard  the  story 
before,  or  one  like  it.  A  young,  suc- 
cessful lawyer  goes  on  a  skiing  trip 
with  his  wife  and  takes  a  bad  tumble. 
He  is  paralyzed  from  the  waist  down. 
The  doctors  say  he  will  never  walk 
again,  and  the  chances  are  good  that 
he  will  be  out  of  work  for  a  long  time, 
if  not  permanently.  Yet  because  he 
was  new  at  his  firm,  he  carried  no 
disability  insurance.  "A  tragedy,"  you 
think  to  yourself.  "But  that  could  nev- 
er happen  to  me.  1  don't  ski." 

Maybe  so.  But  think  again.  If  you 
are  30,  your  chances  of  being  disabled 
are  nearly  three  times  greater  than 
your  chances  of  dying.  If  you  are  over 
50,  they  are  still  nearly  double  your 
chances  of  dying.  Moreover,  the  dis- 
ability could  be  long  term. 

Aside  from  Social  Security,  which 
pays  an  average  of  $851  per  month  to 

most  standard  time-share  terminals 
and  communicating  word  processors. 
The  cost  ranges  from  10  cents  to  $1.20 
a  minute.  Software  packages  to  "mas- 
sage" much  of  this  data  are  available 
from  Apple,  Atari  and  others  (see  Per- 
sonal Affairs,  Forbes,  May  10). 

One  handy  piece  of  equipment  to 
access  DJ's  giant  database  when  you 
are  away  from  your  own  terminal  or 
computer  is  the  Pocketerm  One, 
marketed  by  Charles  Schwab  &  Co., 
the  San  Francisco-based  discount 
broker.  The  Pocketerm,  which  weighs 
less  than  one  pound,  allows  you  to 
talk  to  your  own  computer  by  tele- 
phone. The  terminal  has  a  16-charac- 
ter  display  across  which  letters  move 

a  disabled  family  breadwinner,  most 
Americans  are  not  covered  against 
long-term  illness.  While  84  million 
people  have  some  form  of  disability 
insurance,  generally  through  group 
policies  with  their  employers,  only  21 
million  of  those — about  20%  of  the 
civilian  labor  force — have  coverage 
for  their  income  in  the  event  that  they 
are  out  of  work  for  one  year  or  longer 
due  to  ill  health.  Says  Benjamin  Jones, 
president  of  Monarch  Life  Insurance, 
"Most  people  think  of  disability  as  a 
broken  arm  or  leg  or  appendicitis. 
They  don't  think  of  heart  attacks, 
strokes,  cancer,  chronic  arthritis — the 
dastardly  things  that  can  make  it  im- 
possible to  work."  More  people  carry 
life  insurance  than  disability.  And,  as 
James  Hunt  of  the  National  Insurance 
Consumer  Organization  notes,  "If 
you  die,  you're  gone.  If  you're  dis- 
abled, you're  still  around — and  it 
costs  money." 

in  familiar  ticker  fashion,  spelling  out 
information  as  it  is  received  on  the 
distant  screen.  Pocketerm  will  be 
available  through  computer  stores  for 
about  $400.  Information:  Charles 
Schwab  &.  Co.,  1  Second  St.,  San  Fran- 
cisco, Calif.  94105  (415-546-1000). 

If  you  are  a  heavy  trader  with  a 
discount  broker,  ask  if  the  firm  will 
pick  up  some  of  the  tab  for  market 
information  equipment.  R.F.  Lafferty 
in  New  York,  for  example,  rebates 
10%  of  the  monthly  commissions 
generated  by  customers  who  have 
such  hardware  at  home,  regardless  of 
type.  Source  Securities,  based  in  Bos- 
ton, has  a  similar  arrangement  for  its 
customers. — Kevin  McManus 

To  take  stock  of  your  disability  in- 
surance, begin  with  your  employer. 
Find  out  exactly  what  coverage  you 
carry  under  your  group  plan.  Ideally, 
you  will  be  covered  for  the  entire 
length  of  any  disability.  But  most 
long-term  disability  policies  don't 
start  paying  benefits  for  three  to  six 
months.  So  you  should  considei 
buying  short-term  disability  insur- 
ance on  your  own.  The  desirable 
amount  of  coverage,  says  John  Antliff, 
senior  vice  president  with  Mutual 
Benefit  Life  Insurance,  is  about  60% 
of  your  predisability  gross  income. 

Remember,  if  disabled  you  don't 
have  work-related,  day-to-day  ex- 
penses. And  unless  your  premiums 
are  fully  paid  by  your  employer,  youi 
benefits  will  probably  be  tax-free. 

Under  a  typical  group  plan,  pro- 
vided by  employers,  you  will  receive 
up  to  $3,000  a  month,  starting  any- 
where from  three  months  to  a  yeai 


FORBES,  OCTOBER  11,  1982 

Asia's  first  international  airline  would  like  to  invite  you  to  experience  some  important 
sts"  and  a  touch  of  class  you  won't  find  anywhere  else. 

It's  our  First  Class.  And  with  award- winning  Nouvelle  Cuisine,  more  full-length  beds, 
I  daily  flights  from  the  West  Coast  to  Manila,  it's  no  wonder  Asia's  first  airline  still  is. 

Philippine  Airlines 

A  sia's  first  airline  stilt  is.  ■ 

Amsterdam  Athens  Bahrain  Bangkok  Brishane  Canton  Dhahran  Dubai  Frankfurt  Hong  Kong  Honolulu  Jakarta  Karachi  Kuala  Lumpur 
Kuwait  London  LosAngeles  Manila  Melbourne  Peking  PortMoresby  Rome  SanFrancisco  Singapore  Sydney  Taipei  Tokyo 

Porsche  356 

Porsche  911 

My  work  and  my  hobby  are  the  same:  building  cars  that ' 
are  fun  to  drive.  Building  cars  that  have  the  best  possible 
engineering.  Building  Porsches. 

The  very  first  Porsche  was  the  356. 

We  had  no  marketing  research  to  guide  us.  So  it  was 
designed  to  my  personal  specifications:  small,  light- 
weight, with  good  handling,  and  the  power  of  a  large  car. 

The  idea  was  to  build  a  racing  car  for  the  normal  roads. 
And,  in  fact,  in  1951,  when  the  356  was  first  entered  at 
Le  Mans,  it  won  its  class. 

The  second  Porsche  was,  and  still  is,  the  911. 

First  produced  in  1964,  it's  forever  young.  Its  engine 

One  Mai 

displacement  has  been  increased  from  the  o 
iters  to  3  liters.  And  its  output  has  been  raised  fro 
to  172  hp.  Today,  on  the  track,  the  911  accelerates 
50  mph  in  5.8  seconds.  Its  maximum  speed:  135 
The  911  and  its  derivatives  have  won  countle 
victories  in  motor  sport,  including  rallies,  hill 
and  races.  The  935  Turbo,  for  example,  won  tl 
Championship  of  Makes  in  1976,  '77,  '78,  and  j 
At  Porsche,  we  view  the  race  track  as  a  proving 
For  on  the  track,  under  the  stresses,  surprises,  anc 
of  competition,  the  best  engineering  wins.  And 
learn  from  our  race  cars,  we  put  into  our  productii 

01982  Porsche  Audi 

'  Turbo  Can-Am  champion  (1973)  made  turbo- 

ractical  for  production  cars. 

» Turbo  Le  Mans  champion  (1976,'77,'81)  further 

jngine  design  and  aerodynamic  efficiency. 

I  Targa  Florio  champion  (1970)  set  the  handling 

or  all  Porsches,  including  our  new-generation  928. 

!  has  a  4.5-liter,  220-hp,  aluminum  Porsche  V-8 

i  the  track,  it  accelerates  from  0  to  50  mph  in  6.0 

md  it  has  a  maximum  speed  of  143  mph. 

3  also  has  the  Porsche  transaxle  design  which 

>alanced  braking  and  improved  cornering.  And 

■rs  unprecedented  comfort  and  luxury  in  a  Porsche. 

The  newest  Porsche  is  the  944. 

It  has  a  new  2.5-liter,  143-hp,  aluminum  Porsche  engine, 
built  at  Zuffenhausen.  On  the  track,  it  accelerates  from  0  to  50 
mph  in  5.9  seconds.  And  it  has  a  maximum  speed  of  130  mph. 

The  944  also  has  the  Porsche  transaxle  design,  Porsche 
handling,  and  Porsche  aerodynamics.   

To  me,  the  944  is  more  ^^m*  ^ —   /  \ 
than  a  new  car.  It  is  a  new  I 
and  true  Porsche. 

At  Porsche,  excellence 
is  expected. 

PORSCHE  -  AUDI  btuttgart 

Dr.  F.  Porsche 



after  you  are  disabled.  That  usually 
includes  your  Social  Security  benefit, 
which  is  long  term.  Most  group  con- 
tracts cover  you  for  accident  or  illness 
through  age  65. 

If  you  earn  considerably  more  than 
$60,000  a  year,  however,  that  $3,000- 
a-month  maximum  benefit  under 
your  company's  group  may  hardly  be 
sufficient.  There  are  a  number  of  ways 
you  can  supplement  it.  Many  profes- 
sional associations  offer  disability 
coverage,  for  one  thing. 

If  you  have  no  professional  group  to 
turn  to,  you  may  be  able  to  boost  your 
coverage  through  your  employer's 
carrier.  "Monarch  knocks  10%  off  the 
individual  policy  premium  for  those 
members  of  a  group  who  need  addi- 
tional insurance,"  says  Jones.  "That  is 
a  common  practice." 

If  you  are  yourself  an  employer,  you 
may  want  to  consider  buying  group 
insurance  for  your  company.  Short- 
term  policies  generally  require  a 
minimum  group  of  five  and  long-term 
policies  a  minimum  group  of  ten. 

If  no  group  option  is  available  to 
you,  you  can  always  look  into  individ- 
ual insurance.  Such  a  policy  is  expen- 
sive, but,  notes  Monarch's  Ben  Jones, 
it  has  advantages  that  don't  come 
with  a  group  plan.  "As  an  individual, 
you  can  get  noncancelable  insurance 
with  premiums  guaranteed  until  you 
are  65.  Group  insurance  can  be  can- 
celed, and  if  you  leave  your  employer 
you're  no  longer  insured.  If  you  buy 
individual  coverage,  it's  yours.  You 
own  it."  Individual  insurance  is  avail- 
able from  several  companies,  includ- 
ing Paul  Revere,  Provident  Life,  Mu- 
tual Benefit,  Monarch  Life  and  Union 

The  cost  of  an  individual  policy  de- 
pends on  a  number  of  variables — but 
it's  expensive  no  matter  how  you  slice 
it.  Generally,  individual  policies  are 
about  double  what  a  group  policy 
would  cost.  A  35-year-old  could  pur- 
chase a  guaranteed  noncancelable 
policy  with  a  three-month  waiting  pe- 
riod and  $1,500  in  monthly  benefits 
through  retirement  for  about  $600  a 
year.  A  45-year-old  who  wants  $5,000 
in  monthly  coverage  would  have  to 
pay  $2,000  a  year. 

No  matter  what  kind  of  policy  you 
buy,  keep  in  mind  that  the  circum- 
stances under  which  you  can  collect 

vary  as  well.  For  example,  you  can  be 
covered  for  total  disability  in  your 
own  profession.  If  you  were  a  surgeon 
and  developed  incapacitating  arthritis 
in  your  hands,  you  might  be  able  to 
collect  while  continuing  to  work  as  a 
teacher.  Under  other  contracts,  bene- 
fits could  stop  if  you  were  able  to 
work  at.any  reasonable  occupation. 

If  you  are  disabled,  don't  assume 
that  your  carrier  will  pay  your  claim 
regardless  of  the  circumstances. 
Most  claims  are  paid,  of  course.  But 
some  disabilities  are  contested.  For 
example,  "A  lot  of  companies  will 
tight  you  on  a  soft-tissue  back  in- 
jury," says  Monarch  Life's  Ben  Jones. 
"That's  because  they  are  getting 
slugged  with  malingering — people 
being  laid  off  and  immediately  filing 
claims." — Alyssa  A.  Lappen 

Waiting  for  "Hal" 

The  New  Alchemists  (Little,  Brown, 
$15.95)  is,  to  mince  no  words,  the 
quickest,  most  easily  understood  and 
most  insightful  shortcut  to  electron- 
ics culture  that  has  ever  been  written. 
It  presumes  you  have  been  living  un- 
der a  technological  rock  for  a  genera- 
tion, yet  brings  you  up  to  the  state  of 
the  art  in  332  jargon-free  pages. 

Starting  with  the  vacuum  tube,  au- 
thor Dirk  Hanson  explains  enough 
about  the  evolution  of  the  transistor 
and  the  integrated  circuit  and  the  mi- 
crochip so  you  can  understand  what 
today's  hardware  is,  what  it  does,  how 
it  is  made  and  what  it  is  likely  to  do 
tomorrow.  And  a  high  school  physics 
background  is  all  you  need  to  stay 
with  him. 

Less  than  halfway  through  the  book 

The  New  Alchemists,  by  Dirk  Hanson 
A  shortcut  to  electronics  culture. 

you  will  find  yourself  painlessly  hi 
to  the  very  latest  in  electronic  tech 
nology — VLSI  (very  large  scale  intej 
gration,  or,  more  simply,  supei 
shrunken,  complex  circuits  the  size  rJ 
your  fingernail).  Suddenly  you  realiz 
why  IBM's  order  of  64K  chips  frori 
Intel  was  on  the  front  page  of  the  Wa 
street  Journal  not  long  ago. 

Not  that  the  evolution  of  the  micro 
chip  and  the  microprocessor — whicl 
are  at  the  heart  of  every  computei 
"smart"  missile,  satellite  and  Paq 
Man  game — has  been  orderly,  or  eve) 
logical.  Microchips  were,  and  still  are 
being  produced  for  applications  n< 
one  has  thought  of  yet.  And  there  i| 
still  as  much  art  as  science  in  th 
production  of  those  microchips. 

Nor  was  the  growth  of  Silicon  Val 
ley  without  its  human  dramas.  "Eure 
ka"-type  discoveries,  patent  infringe 
ments,  talent  raids,  high  divorc 
rates,  fortunes  made  and  lost  oven 
night,  Russian  and  Japanese  espic 
nage — all  are  part  of  the  saga  of  thl 

But  once  Hanson  has  brought  vol 
up  to  speed  on  what  the  industry  actu 
ally  does,  how  it  got  there  and  wh< 
some  of  the  players  are  (includin, 
some  giants  you  would  never  expect 
such  as  Exxon)  the  real  story  begins 
What  hath  the  industry  wrought? 

Take  the  communications  an' 
data-transmission  fields,  for  example 
They  have  literally  been  blown  to  bit 
by  the  new  technology.  The  lines  blu 
between  the  likes  of  IBM  and  AT&T 
We  live  in  an  era  of  "compumca 
tions."  Corporate  mastodons,  wit! 
the  imprimatur  of  the  governmeni 
are  girding  for  control  of  the  telecom 
munications  business;  the  stakes  ar 
in  the  hundreds  of  billions  of  dollars 

Take  personal  computers.  Wha 
was  a  $1  billion  market  in  1980  wil 
be  a  $21.5  billion  one  in  1990.  (Neve 
mind  that  you  may  never  maste 
one — your  kids  will.  One  unresolve' 
problem:  radiation  from  video  displa 
terminals.  Some  unions  and  healt 
specialists  maintain  that  they  pose 
long-term  health  hazard.) 

Then  there  is  the  military  and  it 
use  of  the  new  tools.  Spy  and  kille 
satellites.  "Smart"  missiles  and  weap 
on's.  Instantaneous,  widespread  dat 
gathering.  Supersnoop  hardware.  Thl 
capacity  for  push-button  annihila 
tion.  "When  the  Pentagon  took  to  mi 
crochips,  it  opened  a  frightening  Pan 
dora's  box  and  it  is  difficult  to  sa: 
when,  or  if,  the  lid  will  ever  be  naile 
securely  shut  again,"  notes  Hanson. 

There's  automation  made  possibl 
by  electronics,  of  course,  and  its  socia 
consequences.  By  1984,  notes  Elec 
tronic  News,  "The  Japanese  govern 


FORBES,  OCTOBER  11,  19821 

snt  plans  to  have  an  unmanned 
;talworking  plant  on  line,  produc- 
l  machinery  components  ranging 
>m  hydraulic  pumps  to  heavy-duty 
insmitters. . . .  Every  operation,  from 
sting  to  final  inspection,  would  be 
ndled  by  flexible  automatic  sys- 
tls  and  robots,  all  supervised  by  a 
ntral  computer.  .  .  ." 
But  even  with  these  quanttim 
Tips  in  the  capability  to  do  things 
icker,  cheaper  and  better,  there  is 
»o  the  capacity  for  things  to  go 
ong  faster,  more  easily  and  much 
are  catastrophically.  A  team  of  13- 
ar-old  pranksters  managed  to  cause 
:lenet,  a  communications  network, 
lose  control  of  one  of  its  computers 
:  a  day.  Striking  British  civil  ser- 
nts  pulled  the  plug  on  vital  national 
mputer  systems,  shutting  down  the 
>yal  Mint,  the  National  Savings  Lot- 
ry,  the  collection  of  taxes  and  pay  to 
jrkers.  A  talented  computer  analyst 
is  charged  with  using  his  computer 
steal  $10  million  from  Security  Pa- 
ic  National  Bank  and  $50  million 
>m  Union  Bank  in  California. 
Scarier  still,  in  1979  a  data  tape 
>m  a  war  game  was  accidentally  fed 
to  some  military  computers,  indi- 
ting that  a  Soviet  sub  off  the  West 
)ast  had  launched  a  missile  attack, 
filters  were  scrambled,  command 
sts  alerted  and  missile  silos  were 
adied  before  the  error  was  discov- 
sd.  In  1980  there  were  two  more 
nilar  false  alarms. 
No,  for  all  their  wonder,  electronic 
achines  are  still  subject  to  human 
e  and  misuse,  besides  having  their 
ra  frightening,  built-in  glitches, 
osmic  rays  can  foul  up  even  your 
ime  computer,  causing  so-called 
ft  fails,  and  atmospheric  nuclear 
asts  can  wipe  out  entire  telecom- 
unications  systems.) 
The  day  of  "Hal" — the  computer 
ith  artificial  intelligence  that 
arred  in  2001.  A  Space  Odyssey — is  not 
cely  to  be  a  reality  by  that  date.  As 
ie  programmer  in  the  field  put  it,  "It 
kes  a  page  of  instructions  to  tell  the 
achine  that  when  Mary  had  a  little 
mb,  she  didn't  have  it  for  lunch." 
But  the  world  of  electronics  is  too 
uch  with  us,  late  and  soon,  to  be 
nored.  Read  Hanson's  book  for 
>eners.— W.G.F. 

Board  and  room 

jlveryone  wants  to  serve  on  a  board 
J  of  directors,  though  not  too  many 
:ople  know  what  it's  all  about,"  says 
'illiam  H.  Chisholm,  president  and 
under  of  Boardroom  Consultants, 
hich  advises  companies  on  how  to 
in  and  staff  their  boards. 

)RBES^  OCTOBER  11,  1982 

Champagne  coO< 





Small  wonder  there  is  no  shortage 
of  applicants.  For  no  arena  of  corpo- 
rate activity  is  as  prestigious,  as  secre- 
tive or  as  powerful  as  the  boardroom. 

But  what  is  involved  in  serving  on  a 
board?  How  are  directors  chosen? 
How  are  boards  made  up?  What  is  the 
compensation?  The  potential  liabil- 
ity? What's  expected  of  directors? 

While  virtually  all  companies  are 
legally  managed  under  the  direction 
of  a  board— which  represents  owners 
or  stockholders,  not  management — 
virtually  no  two  are  alike  in  composi- 
tion, number,  amount  of  real  power, 
accountability  or  disposition.  "There 
is  no  such  thing  as  an  ideal  board," 
says  Chisholm,  who  was  once  chair- 
man of  Oxford  Paper  Co.  and  has 
served  on  the  boards  of  several  major 
corporations  as  well  as  on  small  com- 
pany and  nonprofit  boards. 

As  Chisholm  sees  it,  there  are  basi- 
cally two  types  of  boards:  active  and 
passive.  For  even  today,  with  the  in- 
creasing number  of  bankruptcies, 
takeovers  and  generally  tough  times 
for  a  lot  of  corporate  managers,  there 
are  still  too  many  rubber-stamp 
boards.  Their  directors  are  expected 
merely  to  approve  the  chairman's  ac- 
tions, no  questions  asked.  Serving  on 
such  a  board,  notes  Chisholm  and 
others,  is  an  invitation  to  stockholder 
suits  if  the  company  goes  bankrupt. 

If  you  are  asked  to  serve  on  a  board, 
here  are  some  other  important  points 
worth  considering,  according  to  Chis- 
holm, the  National  Association  of 
Corporate  Directors,  and  managers  of 
executive  search  firms  who  recruit  di- 

rectors as  well  as  executives: 

•  The  board's  structure.  If  the 

company  has  sales  under  $50  million 
a  year,  it  will  generally  have  five  di- 
rectors and  will  meet  four  to  six  times 
a  year.  Sales  of  SI 00  million -to  $150 
million  means  seven  directors  and  six 
to  eight  meetings.  Companies  with 
sales  of.  $500  million  to  $1  billion 
have  nine  or  ten  directors  and  eight  to 
ten  meetings  annually.  Bilhon-dollar- 
plus  companies  can  have  from  13  to 
15  directors  and  meet  10  to  12  times 

In  recent  years  there  has  been  a 
trend  toward  having  more  outside  di- 
rectors and  fewer  officers  of  the  corpo- 
ration, a  move  widely  applauded  by 
the  SEC  and  most  attentive  stock- 
holders. The  typical  board  of  a  large 
corporation,  according  to  a  recent  sur- 
vey by  executive  recruiters  Korn/ 
Ferry  International,  will  have  four  in- 
side and  nine  outside  directors.  And 
the  company's  own  bankers,  invest- 
ment bankers  and  lawyers  are  less 
commonly  found  on  boards.  The  po- 
tential for  conflicts  of  interest  is  too 
strong.  Senior  executives  of  other  cor- 
porations and  retired  executives  of 
other  companies  comprise  the  bulk  of 
outside  directors,  but  large  gains  are 
being  made  by  academicians,  former 
government  officials  and  women.  Six- 
ty-two percent  of  larger  industrial 
companies  and  75%  of  banks  and  fi- 
nancial institutions  now  have  women 
directors.  The  days  of  a  pretty  face,  or 
a  minority  member  serving  only  as  a 
token,  are  over. 

•  Compensation.  According  to 
Korn/Ferry,  the  average  director's 
compensation  in  1981  was  $15,660,  in 
both  annual  and  per-meeting  fees. 
That  does  not  include  travel  or  other 
special  expenses  for  serving  on  board 
committees.  (The  fees  paid  for  com- 
mittee meetings  average  about  $500 
per  session.) 

In  addition,  outside  directors  are 

now  commonly  offered  such  benefits 
as  accident,  medical  and  life  insun 
ance  (especially  valuable  for  retiree) 
board  members).  Director's  liability 
insurance — to  protect  against  stock< 
holder  lawsuits — is  also  routinely, 
provided,  of  course.  And  almost  hall 
of  the  606  companies  that  responded 
to  the  Korn/Ferry  survey  permit  direc- 
tors to  defer  collecting  their  fees  until 

•  Practices  and  policies.  An  out-j 
side  director  can  expect  to  spend  an 
average  of  1 23  hours  a  year  on  board- 
related  matters.  That  breaks  down 
into  28  hours  for  review  and  prepara- 
tion, 45  hours  for  travel  and  50  hours 
for  attendance  at  board  and  commit- 
tee meetings. 

There  is  often  a  mandatory  retire- 
ment age  for  directors:  typically  70  for 
outsiders,  an  average  of  68  for  insiders. 

Fifty-one  percent  of  companies  now 
require  all  board  members  to  sign  the 
Annual  Report  Form  10-K.  That's  thei 
one  that  can  get  you  into  trouble  if 
anything  is  awry  with  the  company 
and  there  are  lawsuits  later. 

•  The  role  of  the  board.  As  you| 
might  expect,  the  dominant  concern  of  I 
directors  is  financial  results,  now  more; 
than  ever.  There  is  also  greater  concern 
than  in  the  past  over  such  issues  as| 
managerial  succession  and  day-to-day 
operations.  There  is  relatively  littlel 
concern  nowadays  over  corporate  eth- 
ics and  government  relations. 

•  How  directors  are  chosen.  The 
old-boy  network  is  alive  and  well  in 
the  boardroom.  Almost  80%  of  out- 
side directors  are  already  known  to 
the  chairman  and  other  board  mem- 
bers. "Chemistry  is  extremely  impor- 
tant on  a  board,"  notes  Chisholm. 

The  role  of  the  nominating  com- 
mittee is  growing,  however,  and  55% 
of  boards  use  them  as  a  means  of 
identifying  and  selecting  board  mem- 
bers, though  the  chairman  almost  al- 
ways has  veto  power. 


FORBES,  OCTOBER  11,  1982 

There's  little  doubt  that  the  gold  price  these  days  looks 

Thus  it  is  not  surprising  to  see  a  renewed  interest  in  the 
ital  on  the  part  of  some  investors. 
But  what  is  also  not  surprising  is  that  these  investors 
ght  be  overlooking  something  as  they  once  again 
)ve  into  gold. 

In  the  past  few  years,  many  have  bought  gold  for  the 
ort  term  only— buying  it  low  and  selling  at  a  higher 
ce  in  a  few  months  or  so,  or  maybe  a  few  years  or  so. 
id,  if  it  didn't  perform  right  away  they  dumped  it. 
This  has  sometimes  been  a  good  tactic,  but  it  also 
lores  the  classic  reason  to  own  gold. 
3old  is  not  like  other  investments.  It  is  not  like  stocks  or 
nds.  It  is  not  like  collectibles,  it  is  not  like  options,  it  is 
t  like  real  estate.  It  is  not  even  like  silver,  which  is 
ailable  in  larger  quantities,  and  is  also  stockpiled  for 
vitary  and  industrial  uses. 
Gold  is  man's  classic  hedge— whether 
ainst  inflation,  a  stock  market  crash,  a 
valuation,  a  bank  failure— against  al- 
)st  any  monetary  crisis.  It  has  been 
s  way  historically,  the  hedge 
at  moves  independently  of  pa- 
r  investments.  And  the  wise 
'estor  uses  it  as  such  with 
aybe10to15  percent  of  his  long 

term  portfolio  or  savings  in  gold.  It  is  a  kind  of  capital 
insurance.  You,  after  all,  insure  your  life,  your  home,  your 
car-  why  not  insure  your  portfolio^ 

Once  you've  made  a  commitment  to  gold,  you'll  find 
there's  one  coin  that  really  stands  out:  The  Krugerrand. 

Noothergoldcoin  hassomanyofthegood  investment 
attributes  of  the  South  African  Krugerrand:  Its  four  sizes 
offer  exactly  one  ounce,  1/2  ounce,  1/4  ounce,  and  1/10 
ounce,  of  pure  gold.  So  you  can  easily  relate  them  to  the 
daily  gold-ounce  price.  What's  more,  there's  been  just 
enough  extra  metal  added  to  them  to  make  them  hard 
enough  to  resist  scratching  and  denting. 

Sold  in  volume  and  therefore  at  a  low  premium  over  the 
price  of  gold,  you  buy  Krugerrands  at  many  local  coin 
dealers,  precious  metals  companies  and  at  some  se- 
lected banks  and  brokerage  firms. 

And  you  now  know  the  real  reason  to  buy  them. 

For  information  and  dealers  near  you  call  800-526- 
7843Ext.0008(in  New  Jersey,  800-522-4503)  orsendthe 


The  world's  best  way  to  own  gold. 

©  1982  International  Gold  Corporation  Ltd 



Possibly  because  of  the  slump  that 
many  corporations  are  in,  the  need  to 
tend  to  one's  own  knitting  first  and  the 
threats  of  liability,  more  prospective 
candidates  than  ever  are  turning  down 
invitations  to  sit  on  boards.  About  one 
in  five  declines.  Insurance  companies 
had  the  highest  turn-down  rate  in 
1981,  with  35%  saying  that  prospec- 
tive directors  had  nixed  their  offers. 

If  you  want  to  serve  on  a  board,  the 
first  thing  to  do,  obviously,  is  to 
spread  the  word,  not  only  among 
board  chairmen  and  directors  you 
know,  but  also  with  specialists  who 
sometimes  hunt  for  directors.  You 
can  drop  a  resume  off  and  fill  out  a 
questionnaire  at  Boardroom  Consul- 
tants (230  Park  Ave.,  New  York,  N.Y. 
10169)  and  the  National  Association 
of  Corporate  Directors,  one  of  the 
American  Management  Associations 
(440  First  St.  NW,  Washington,  D.C. 
20001).  Several  executive  recruiting 
firms  also  find  directors  for  their 
corporate  clients  from  time  to  time. 
Among  them  are  Robert  L.  Gette, 
Haley  Associates,  Heidrick  &  Strug- 
gles, Korn/Ferry  International,  Nor- 
deman  Grimm  and  Spencer  Stuart  & 
Associates. — W.G.F. 

Loose  ends 

Going  on  a  cruise  is  a  great  idea, 
but  picking  a  ship,  the  right 
cruise  line  and  destination  can  be  so 
maddening  as  to  make  you  want  to 
forget  the  whole  thing.  You  could 
spend  the  entire  fall  and  winter  go- 
ing blind  at  your  travel  agency  look- 
ing through  glittering  brochures  that 
tell  you  little  more  than  that  the 
water  is  green  and/or  blue  and  what 
the  dates  of  departure  are.  Now  28 
major  cruise  lines,  wisely  banded 
together  in  their  own  trade  associ- 
ation, have  compiled  a  concise,  in- 
formative guide  to  cruises  that  will 
save  you  hours  in  the  winnowing 

To  bolster  sales  this  year,  cruise 
lines  are  offering  a  number  of  incen- 
tives, including  free  air  transportation 
to  ports  of  departure,  cash  rebates  for 
early  bookers,  fiat  rates  for  both  inside 
and  outside  cabins,  discounts  for  third 
and  fourth  persons  sharing  a  cabin 
with  two  full-fare  passengers,  special 

The  Sun  Lines'  cruise  ship  Stella  Solaris 
A  Love  Boat  cruise  in  your  future. 

standby  fares  and  single-passenger 
discounts.  For  a  rundown  on  cruises 
this  fall  and  winter,  including  costs 
and  any  special  incentives,  as  well  as 
some  tips  on  taking  a  cruise,  send  a 
9x1 2-inch  envelope  and  $2  to  cover 
postage  and  handling  to  the  Cruise 
Lines  International  Association  at  ei- 
ther Pier  35,  Suite  200,  San  Francisco, 
Calif.  94133,  or  1 7  Battery  Place,  Suite 
631,  New  York,  N.Y.  10004. 

Picking  a  mutual  fund  isn't  easy.  Like 
many  another  financial  writer  who  is 
often  asked  to  choose  one,  I  first  cite 
Forbes'  own  annual  mutual  fund  sur- 
vey, published  this  year  on  Aug.  30. 
Then  comes  the  second  question:  How 
can  I  contact  funds  for  more  informa- 
tion? Well,  there  are  now  three  mother 
lodes  for  such  data. 

First,  there  is  the  Investment  Com- 
pany Institute,  the  trade  association  for 
most  of  the  nation's  mutual  funds. 
Upon  request,  the  institute  will  mail 
you  a  complete  list  of  member  funds, 
including  addresses,  toll-free  tele- 
phone numbers  and  a  designation  as  to 
what  type  of  fund  each  is.  The  institute 
breaks  them  down  into  ten  categories: 
aggressive  growth;  balanced;  bond; 
growth;  growth  and  income;  income,- 
limited  maturity  municipal  bond;  mu- 
nicipal bond;  money  market;  and  op- 
tions. The  institute  will  also  furnish 
you  with  separate  lists  of  funds  ar- 
ranged by  category.  Address:  1 775  K  St. 
NW,  Washington,  D.C.  20006. 

The  No-Load  Mutual  Fund  Associ- 
ation publishes  a  directory  each  year 

that  gives  thumbnail  descriptions  of 
funds,  in  addition  to  addresses  and 
phone  numbers.  Over  50,000  copies 
are  sold  each  year.  Cost  is  $1  to  cover 
postage  and  handling.  Address:  Valley 
Forge  Colony  Building,  Valley  Forge, 
Penna.  19481. 

A  more  comprehensive  (and  expen- 
sive) rundown  can  be  found  in  The\ 
Handbook  for  No-Load  Fund  Investors, 
published  by  the  editors  of  the  No- 
Load  Fund  Investor  advisory  service. 
It  includes  a  lot  of  solid  how-to  ad- 1 
vice  that  even  seasoned  investors  will 
find  useful.  Cost:  $39,  which  includes 
four  quarterly  newsletters.  Address: 
P.O.  Box  283,  Hastings-on-Hudson, 
N.Y.  10706. 

Financial  aid  for  your  child's  college 
education  is  harder  to  get  than  it  was 
even  a  couple  of  years  ago.  One  good 
source  of  information  on  the  subject 
is  "Financing  Student  Loans,"  a  re- 
port published  by  the  College  Board. 
The  report,  which  examines  gaps  in 
available  student  aid  and  makes  sug- 
gestions on  filling  them,  is  available 
for  -$4.  Write  to  the  College  Board, 
1717  Massachusetts  Ave.  NW,  Wash- 
ington, D.C.  20036.  Another  good 
booklet  on  the  subject  is  "Don't  Miss 
Out,"  an  annual  guide  to  scholarships 
and  loans.  Two  key  suggestions  by 
author  Bob  Leider:  Be  thoroughly  fa- 
miliar with  federal  aid  programs  and 
apply  early.  For  a  copy  send  $3  to 
Octameron  Press,  P.O.  Box  3437,  Al- 
exandria, Va.  22302. 


FORBES,  OCTOBER  11,  1982 

A  Rolls-Royce  is  one  of  the 
few  investments  you  can  control 
with  your  own  hands* 

A  Silver  Spur  is  a  rare  commodity  at 
your  command. 

Take  the  wheel,  turn  the  key  and 
listen.  The  V-8  engine  is  a  whisper. 

Step  on  the  accelerator  and  hit  the 
speed  limit  in  seconds.  The  power  is 
overwhelming  and  road  noises  and 
vibrations  are  imperceptible. 

Head  for  a  familiar  rough  road. 
The  independent  front  and  rear 
suspensions  make  you  wonder  if  it 
has  been  repaved. 

Zigzag  through  a  countryside. 
The  aerodynamic  shape  lets  you  slice 
through  crosswinds  and  sail  around 
corners  with  ease. 

Come  to  a  stop  from  any  speed. 
The  independent  braking  systems 
bring  you  to  a  swift  halt  without  a 
skid  or  a  swerve. 

Drive  from  upstate  New  York  to 
downtown  Phoenix  in  the  middle  of 
February.  The  unique  Rolls-Royce 

twin-level  automatic  air-conditioning 
maintains  whatever  temperatures  you 
have  set  to  cool  your  head  and  warm 
your  feet. 

Revel  in  the  glory  of  the  ride  and 
the  comforts  of  the  car.  Every  detail 
from  the  electronic  conveniences  to 
the  personal  craftsmanship  is  pure 

And  like  every  Rolls-Royce  you  have 
ever  seen,  a  new  Silver  Spur  is  built 
by  hand,  built  to  last  and  built  to 
appreciate  in  value  long  after  time 
catches  up  with  ordinary  cars. 

More  than  half  the  cars  in 
Rolls-Royce  history  are  still  on  the 
road.  Many  of  them  are  worth  more 
titan  they  were  years  ago.  And  if  you 
have  dreamed  of  owning  a  Rolls™ 
someday,  today  is  the  day  to  either 
purchase  or  lease  a  Silver  Spur. 

All  that  is  missing  in  this 
masterpiece  is  you. 

For  the  Rolls-Rovce  Authorized  Dealership  nearest  vou,  contact 
Rolls-Royce  Motors  Inc. ,  Lyndhurst,  New  Jersey  07071. '( 201 )  460-7800. 
The  names  "Rolls-Royce"  and  "Silver  Spur"  and  the  mascot,  badge  and  radiator  grille  are 
registered  trademarks,  as  are  die  Bentlcy  name,  mascot  and  badge. 

©  Rolls-Rovce  Motors  Inc  1982 

A  Rolls-Royce  is  a  Rolls-Royce. 


Behind  The  Figures 

Edited  by  Barbara  Ettorre 

Pumping  plastic 

Arco  dropped  its  gasoline  credit  card 
in  April.  Shell  last  month  began  a 
media  blitz  to  encourage  present 
Shell  cardholders  to  use  the  card 
more  often  and  to  attract  new  ones. 
And  just  to  confuse  matters,  the 
likes  of  Exxon,  Gulf  and  Phillips  re- 
cently imposed  a  3%  credit  card  fee 
on  their  dealers,  many  of  whom  are 
passing  it  on  at  the  pump. 

Now  comes  Getty  with  another 
wrinkle.  As  of  Nov.  1,  it  will  junk  its 
own  credit  card  operation — but  en- 
courage its  dealers  to  accept  Visa  and 

Differ  hopes  to  improve  Getty's  credit 
card  business  at  the  pump,  today  cur- 
rently only  13%  of  its  total  gas  rev- 
enues compared  with  a  20%  industry 
average.  Only  300,000  Getty  cards  are 
active,  he  notes,  whereas  "mdlions  of 
bank  cards  are  in  the  hands  of  people 
driving  cars."  Moreover,  Differ  be- 
lieves bank  cards  could  spawn  a  far 
greater  increase  in  volume  than  could 
a  price  cut  of  only  a  few  cents  at  the 
4,600  Getty,  Skelly  and  Mohawk  sta- 
tions pumping  his  gas  nationwide. 

Differ,  59,  a  27-year  veteran  of  the 
oil  industry  who  has  run  Getty's  mar- 
keting since  1966,  says  his  division 
had  pondered  the  credit  card  problem 
for  two  years  before  making  tbe  move 
to  Visa  and  MasterCard.  He  flatly  de- 
nies that  it's  an  intermediate  step  on 
the  way  to  discontinuing  credit  cards 
altogether.  "We  were  aware  of  what 
the  other  companies  were  announc- 
ing," he  says.  "We  want  to  do  some- 
thing a  little  different,  something  to 
help  our  dealers." — Michael  Moynihan 

Thomas  Differ,  senior  rice  president  of  Getty  Oil  Co. 

Only  300,000  active  Getty  cards  out  there,  but  millions  of  bank  cards. 

MasterCard  bank  credit  cards.  Arco 
figured  it  would  save  $73  million  a 
year  by  dropping  its  card  and  chose  to 
pass  it  along  to  customers  in  lower  gas 
prices.  Getty,  instead,  will  pass  along 
a  good  chunk  of  its  savings  (it  won't 
say  how  much)  to  its  dealers,  by  pay- 
ing the  bank  card  a  commission  of  3% 
or  less  on  gasoline  and  oil  sales.  (The 
dealers  themselves  will  pay  the  com- 
mission on  repair  and  parts  sales.) 

The  idea,  says  Thomas  Differ,  a 
Getty  senior  vice  president  and  the 
plan's  creator,  is  to  cut  costs  without 
cutting  credit  lines.  "It  is  a  lot  differ- 
ent, now  with  gasoline  generally 
more  than  a  dollar  a  gallon,  as  com- 
pared to  the  days  when  it  was  under 
20  cents,"  he  says. 

Why  stick  with  credit  cards  at  all? 
With  the  use  of  Visa  and  MasterCard, 

Oyez,  oyez  . . . 

One  of  the  most  important  copyright 
cases  in  decades,  if  not  of  all  time — 
Sony  Corp.  of  America  v.  Universal  City 
Studios,  Inc. — is  scheduled  to  be  heard 
next  spring  by  the  U.S.  Supreme 
Court.  Legal  bills  on  each  side  are 
already  well  past  $1  million  since  the 
battle  was  joined  six  years  ago,  and 
two  Los  Angeles  attorneys  are  now 
readying  final  arguments  that  will  de- 
cide the  vexing  issue  at  the  case's 
core — how  to  strike  a  balance  be- 
tween the  rights  of  ownership  and  the 
rights  of  use. 

Both  Stephen  Kroft,  Universal's 
chief  counsel,  and  Dean  Dunlavey, 
Sony's  lead  attorney,  have  been  with 
the  case  since  it  began  in  1976,  when 

Attorney  Stephen  Kroft  for  I  nirersal 
Seeking  damages  at  the  root.  .  .  . 

Universal,  to  protect  the  value  of  its 
film  library,  went  into  a  federal  court 
seeking  to  halt  the  sales  of  Sony  Beta- 
max  videocassette  recorders.  The 
court  refused  to  do  so.  Universal  ap- 
pealed, and  in  1981  the  lower  courl 
was  reversed.  Meanwhile,  the  U.S. 
Congress,  grappling  cautiously  with 
the  conflicting  equities  involved,  has 
significantly  updated  copyright  stat- 
utes but  has  left  considerable  room  foi 
judicial  interpretation. 

Stephen  Kroft,  38,  a  Stanford  law 
graduate  and  a  partner  at  Rosenfeld, 
Meyer  &.  Susman,  seems  clearly  eagei 
to  avoid  casting  his  client,  Universal, 
in  the  role  of  public  enemy.  "We're  not 
suing  individuals,"  he  says.  "We're  su- 
ing manufacturers.  We  want  to  get  out 
damages  at  the  root  of  the  problem." 

Damages?  Quite  the  contrary,  Dean 
Dunlavey,  57,  a  Harvard  law  graduate 
and  partner  at  Gibson,  Dunn  & 
Crutcher,  will  argue  for  Sony.  "Uni- 
versal makes  money  renting  or  selling 
its  cassettes  to  Betamax  owners,"  he 
says.  "The  Betamax  recorder  has 
probably  increased  Universal's  profits 
far  more  than  those  of  its  maker." 

Anyone  with  a  taste  for  legal  subtle- 
ties will  have  a  high  old  time  as  Kroft 
and  Dunlavey  square  off  at  each  other 
and  the  learned  justices  throw  zingers 
at  both  of  them  from  the  Supreme 
Court  bench.  The  new  copyright  act 
that  became  law  in  1978,  for  example, 
ticked  off  five  exclusive  rights  of 
copyright  owners,  including  the  right 
to  "reproduce  or  authorize  the  repro- 
duction" of  a  copyrighted  work,  such 
as  one  of  Universal's  movies.  But  un- 
like other  rights,  which  clearly  apply 
only  to  public  use,  the  new  act  makes 
no  distinction  between  public  and  pri- 
vate use.  Should  home  video,  then,  be, 
included  or  exempted?  All  sorts  of 
complications  follow,  like  what  is 
"fair  use"  and  what  is  "privacy"? 

More  than  the  long-term  value  ol 


FORBES,  OCTOBER  11,  1982 

III  71 

Wtomey  Dean  Dunlaveyfor  Sony 
.  .  What  damages? 

Jniversal's  huge  14,000-plus  film  li- 
brary, or  the  future  sales  of  home 
/CRs  and  tapes  (now  roughly  a  $1 
)illion  market),  is  at  stake.  Among 
;everal  bills  now  pending  in  Con- 
press  is  one  that  would  slap  a  $50 
oyalty  on  the  sale  of  each  VCR  and 
51  on  the  sale  of  blank  tapes — the 
)roceeds  of  which  would  go  into  a 
dtty  to  reimburse  copyright  owners. 
Dean  Dunlavey  admits  he  does  a  lit- 
:le  private  home-videotaping  him- 
self.— Roger  Neal 

These  seats  are  taken 

3an  American  World  Airways  flight 
[10,  which  leaves  JFK  International 
or  Rome  every  day  at  6:45  p.m.  and 
■eturns  as  flight  111  the  next  day,  is 
/irtually  a  private  New  York-to- 
ilome  shuttle  for  Mario  Perillo,  56, 
^resident  and  owner  of  Pearl  River, 
SLY. -based  Perillo  Tours.  Since  1974, 
»vhen  his  firm  started  buying  air  tick- 

ets exclusively  from  Pan  Am,  Perillo 
estimates  that  his  firm  has  flown 
some  90,000  people  to  Italy  and  back. 
It's  the  only  destination  Perillo 
serves.  This  year  alone,  in  the  season 
running  from  April  to  October,  Perillo 
says  he  has  flown  20,000  travelers  on 
his  15-day  package  tours — a  15%  in- 
crease over  1981.  Of  Pan  Am's  esti- 
mated 146,000  round-trip  passengers 
to  Italy  annually,  Perillo  Tours  ac- 
counts for  about  15%.  His  firm  is  now 
Pan  Am's  single  biggest  customer. 

The  Perillo  family  has  been  selling 
all-inclusive  package  tours  to  Italy 
since  1945,  when  Perillo's  father,  Jo- 
seph, started  the  operation,  and  even 
before  Pan  Am  began  to  fly  377  Strato- 
cruisers  to  Rome  in  one-way  trips  of 
17  hours.  Perillo  used  to  sell  charter 
flights  until  he  negotiated  a  deal  with 

Called  to  account 

Firestone  Tire  &.  Rubber  Co.  reported 
a  $79  million  profit  on  sales  of  $4.3 
billion  in  1981.  But  under  inflation- 
accounting  guidelines  established  by 
the  Financial  Accounting  Standards 
Board,  Firestone  had  a  loss  of  $112 
million  last  year. 

Which  figure  is  right?  Neither,  says 
Victor  Brown,  currently  Firestone's 
chief  financial  officer  and  soon  to  be- 
come a  full-time  member  of  the  FASB 
itself.  "Traditional  accounting  rules 
need  supplementing  these  days,"  he 
says.  "But  the  inflation-adjusted 
numbers  are  not  the  whole  truth  ei- 
ther. They  show  what  would  be  ob- 
tained under  certain  conditions.  They 
were  drawn  up  in  a  spirit  of  experi- 
ment." The  inflation  accounting  rule 

Victor  Brown  of  Firestone  Tire  &  Rubber  Co. 

A  "spirit  of  experiment"  to  find  "the  whole  truth.' 

Mario  Perillo  of  Perillo  Tours 
Thank  God  for  Mario. 

Pan  Am  to  buy  regular  flights  at  a 
discount — a  big  draw  for  a  budget- 
minded  traveler.  A  normal  economy- 
class  round  trip  to  Italy  now  runs 
$1,200  on  Pan  Am.  Perillo's  $1,500 
package  includes  air  fare  and  ground 
transfers,  meals,  hotels  and  sightsee- 
ing for  two  weeks.  His  sales  reached 
$30  million  this  year. 

Perillo  is  sanguine  about  Pan  Am's 
problems  (seep.  124).  "What  we  hear 
from  the  soldiers  of  the  organiza- 
tion— the  agents,  clerks  and  so 
forth — is  that  they  think  they  are  over 
the  hump,"  he  says.  "They  seem  en- 
thusiastic, and  that  gives  us  a  warm 
feeling."  So  sure  is  he  of  the  continu- 
ing lure  of  Italy  and  the  ability  of  Pan 
Am  to  get  American  travelers  there 
that  Perillo  has  already  signed  up  for 
23,000  places  with  the  carrier  for 
1983. — Aaron  Bernstein 

on  depreciation,  for  instance,  assumes 
that  a  company  would  replace  its  ex- 
isting plant  with  exactly  the  same 
facilities.  "Technology,"  notes 
Brown,  "has  moved  on  and  demand 
has  changed.  Firestone  may  want  to 
do  something  different  the  next 
time."  A  lot  of  executives  in  smoke- 
stack businesses  would  agree. 

Brown,  53,  a  graduate  of  the  Wharton 
School  of  Business,  came  to  Firestone 
less  than  a  year  ago  from  Standard  Oil 
of  Indiana.  He  will  be  regarded  as  indus- 
try's spokesman  on  the  seven-member 
FASB  board.  His  colleagues  on  the 
Stamford,  Conn. -based  board  are 
drawn  from  public  accounting  prac- 
tice, government  and  academic  life. 

Money  is  hardly  the  attraction  for 
Brown  at  the  FASB.  He  will  receive 
$185,000  a  year — not  a  pittance,  cer- 
tainly, but  it  simply  matches  his  cur- 
rent salary  at  Firestone.  There  are  no 

FORBES,  OCTOBER  11,  1982 



Behind  the  Figures 

bonuses,  such  as  the  $90,000  he  re- 
ceived this  year  based  on  Firestone's 
profits — before  inflation  adjustments, 
of  course.  He  denies  a  clash  with  Fire- 
stone CEO  John  Nevin  and  adds:  "The 
new  job  is  a  chance  to  make  a  differ- 
ent kind  of  contribution,  somewhat 
akin  to  public  service." 

Known  tor  working  long  hours, 
Brown  will  need  his  stamina  for  his 
new  job.  Each  FASB  member  is  ex- 
pected to  keep  tabs  on  all  aspects  of 
the  board's  work.  A  new  standard  may 
be  argued  about  for  years  and  could 
draw  as  much  as  8,000  pages  of  com- 
ment from  the  public  before  it  is 
adopted.  Members  are  expected  to 
read  it  all. — Eamonn  Fingleton 

Follow  the  bouncing  ball 

"We  used  to  kid  in  the  industry  that 
the  two  most  important  typewriters 
in  the  world  were  IBM  and  IBM  used," 
says  Thomas  O'Reilly,  president  of 
Juki  Office  Machine  Corp.  For  IBM's 
typewriter  competitors,  that  joke  was 
no  laughing  matter.  Of  the  estimated 
10  million  electric  typewriters  (not 
including  portables)  now  in  use  in 
U.S.  offices,  the  IBM  Selectric,  first 
introduced  in  1961,  has  85%  of  the  SI 
billion  market.  But  O'Reilly  thinks  he 
has  something — a  typewriter  that 
looks  and  works  like  a  Selectric,  rotat- 
ing ball  and  all,  at  half  the  price. 

Others  may  be  convinced  that  elec- 
tronic word  processors  have  doomed 
the  electromechanical  technology  of 
the  Selectric,  whose  basic  design  is  20 
years  old.  Not  O'Reilly.  After  30  years 
of  selling  typewriters  for  Remington, 
Olympia  and  Adler,  he  became  con- 
vinced that  people  really  wanted  not  a 
new  technology,  but  a  Selectric  sell- 
ing for  around  $400  rather  than  at 
IBM's  starting  price  of  $995. 

O'Reilly  spent  seven  years  and  $1 
million  to  build  a  prototype.  He  and 
two  associates  raised  the  money  from 
bank  loans  and  O'Reilly's  typewriter 
distributorship.  He  took  the  proto- 
type to  Japan,  to  Tokyo  Juki  (1981 
sales,  $450  million),  the  world's  larg- 
est maker  of  industrial  sewing  ma- 
chines. Juki  had  already  been  manu- 
facturing Olivettis.  Now,  it  has  man- 
ufacturing and  marketing  rights  for 
O'Reilly's  machine — called  the  Sier- 
ra— paying  O'Reilly  an  undisclosed 

Juki  Office  Machine's  Thomas  O'Reilly 
An  old  technology,  but  half-price. 

royalty  for  each  machine.  For  openers, 
Juki  will  offer  a  $400  model  to  pick  off 
individuals  and  small  businesses  pin- 
ing for  a  used  IBM  Selectric.  To  that 
market  segment  O'Reilly  expects  to 
sell  60,000  typewriters  by  year-end. 
By  then  O'Reilly  hopes  to  start  luring 
bigger  office  customers  with  a  $595 
Sierra  to  go  against  IBM's  Selectric  II 
($995).  By  the  end  of  1983,  O'Reilly 
hopes  to  be  selling  350,000  Sierras 
shipped  from  the  $16  million  plant 
Juki  has  built  in  Hiroshima. 

No  rumblings  from  IBM  so  far. 
In  fact,  as  president  of  Juki  Office 
Machine,  O'Reilly  signed  a  market- 
ing agreement  with  IBM  recently, 
making  him  an  authorized  U.S. 
distributor  of  the  IBM  typing 
balls —Kathleen  K.  Wiegner 

Never  mind  Schlag 
and  Strauss 

Add  Austria  to  the  list  of  European 
countries  seeking  U.S.  high-technolo- 
gy companies  to  invest  within  their 
borders.  "We  have  been  losing  oppor- 
tunities because  we  have  not  been 
promoting  ourselves,"  said  Deputy  Fi- 
nance Minister  Hans  Seidel  during  a 

recent  mission  to  the  U.S.  to  sprcaQ 
the  good  word.  His  talks  with  Ameri' 
can  executives  have  focused  not  on 
pastries  and  scenery  but  on  Austria'^ 
work  force  and  its  already  solid  repu  " 
tation  in  precision  engineering. 

"Including  fringe  benefits,  oul 
skilled  workers  cost  30%  to  40%  less 
than  those  in  West  Germany  or  Swit-* 
zerland  and  are  just  as  good,"  says 
Seidel,  who  notes  that  almost  one  in 
three  manufacturing  jobs  in  Austria  is 
now  supplied  by  a  non-Austrian  com- 
pany. It  was  the  work  force,  he  says, 
that  motivated  GM  in  1979  to  put  a 
$450  million  engine  plant  near  Vien- 
na— just  30  miles  from  the  Eastern 
bloc.  And,  it  was  the  work  force  that 
led  to  Europe's  first  64K  RAM  chips 
being  made  in  Deutschlandsberg, 
Austria  by  Siemens,  the  big  German 
concern  and  the  largest  foreign  em- 
ployer in  Austria. 

Besides  the  workers,  what  can  Aus- 
tria offer?  Tariff-free  agreements  withi 
the  EEC  and  membership  in  the  Euro- 
pean Free  Trade  Association,  for  one 
thing — a  total  Western  European  mar- 
ket of  370  million  people.  Moreover, 
Austria  pays  up  to  30%  of  a  new  in- 
vestment in  grants  and  subsidized' 
loans,  with  training  grants  on  top  oft 
that.  On  the  bargaining  table,  too,  is] 
an  unusual  no-loss  leasing  scheme, 
under  which  an  Austrian  state  agency 
covers  the  first  moneylosmg  years  for 
small  companies  (under  50  employ- 
ees) on  the  condition  that  the  foreign 
firm  promises  to  stay  for  an  additional 
number  of  years  (and  gets  an  option  to 
buy  the  facility  at  a  bargain). 

Other  special  incentives  are  avail- 
able to  companies  planning  to  export 
a  lot  of  goods.  The  chief  reason  for 
that  sweetener  is  the  chronic  deficits 
in  Austria's  balance  of  payments — the 
result  of  having  to  import  70%  of  its 
energy  needs.  In  most  other  respects, 
says  Seidel,  59,  formerly  the  head  of 
the  Austrian  Institute  of  Economic 

Austrian  Deputy  Finance  Minister  Hans  Seidel 
"We  don't  like  hire-and-Jire." 


FORBES,  OCTOBER  11,  1982 




"Every  morning  I  make  sure  I  get  to  work  as  early  as  The  Wall  Street  Journal  does, 
lat  way,  I'm  sure  to  have  time  to  read  it  before  my  first  meeting,  in  fact,  most  other 
sy  executives  I  know  also  consider  The  Journal  a  necessary  part  of  their  business  day. 

"You  see,  The  Journal  is  the  source  of  business  information.  Information  that  I 
solutely  need  to  help  me  make  decisions.  In  my  experience  it's  by  far  the  most  quoted, 
nembered  and  thoroughly  used  publication  available. 

"When  I  read  The  Journal,  I  know  I'm  not  going  to  miss  anything  important  in  busi- 
ss.  So  even  though  I  give  up  some  sleep  mr  111  AM  Of  DECT  IMIDUAI 
iding  it,  I  wouldn't  dream  of  starting      IHE  WALL  dllfEEl  JUUffNM. 
/  day  without  The  Wall  Street  Journal!'  M  the  business  news  you  need. When  you  need  it. 

•scribe  today,  call  800-345-8540  except  Hawaii  or  Alaska.  PA  800-662-5180.  Or  write:  200  Burnett  Rd.,Chicopee,  MA  01021. 

One  of  the  growth  technologies  of  the  future  is  computer- 
ized image  processing. 

Ifs  a  vital  technological  thrust.  More  and  more,  industry, 
medicine,  science  and  defense  are  making  use  of  huge  num- 
bers of  images  gained  from  many  sources— radar,  infrared, 
acoustic,  television  cameras. 

Until  recently,  most  images  have  been  analyzed  or 
compared  only  by  specialists.  But  now,  computers  are  being 
taught  to  "read/understand"  and  make  decisions  about 
torrents  of  images  that  would  otherwise  swamp  the  human 
eye  and  brain. 

'The  tanks  just  moved! 

The  orange  lines,  which  are  offset 
from  the  original  image  of  the 
tank,  are  part  of  the  recognition 
technique  that  shows  the 
tank  has  moved. 

This  can  becritical  inputto 
a  threatened  commander,  and 
he  needs  it  almost  instantly. 

A  reconnaissance  aircraft  or 
satellite  carrying  a  sensor  such 
as  a  television  camera  or  radar 
would  make  the  discovery.  The 
sensor's  images  then  are  con- 
verted into  electrical  signals 
and  sent  to  a  computer,  where 
they  are  stored  as  arrays  of 
numbers.  Computer  programs 
manipulate  the  numbers  until 
the  tanks  are  "recognized."  An 
enhanced  image  showing  the 
tanks  can  be  reconstructed  and 
displayed  for  the  commander. 

But  a  computer,  unlike  a  human  being,  has  to  beg) 
mathematical  description  in  advance  to  know  what] 
looks  like.  The  sensor,  covering  everything  it  sees,  se 
a  staggering  volume  of  signals.  So  the  computer  mua 
"trained"  to  eliminate  unimportant  images  and  conq 
on  significant  ones. . .  for  example,  to  look  for  the  tail 
were  spotted  yesterday  to  see  if  they  moved. 

This  is  not  just  laboratory  theory.  Lockheed  teams  j 
now  are  training  computers  in  this  automated  image 
standing,  or  "computer  vision!' 

How  big  is  the  wheat  crop? 

Identifying  wheat  from  corn  from  sagebrush  orotl1 
growth  is  another  triumph  of  computerized  image  pre 

The  photo  here  came  from  a  Landsat  satel  I  ite.  The 
color,  assigned  by  a  computer,  indicates  wheat.  Bare 
ground,  plowed  ground,  and  stubble  are  in  shades  of 
Working  with  NASA,  Lockheed  scientists,  engineers 
mathematicians  have  developed  techniques  to  proa 
numbers  of  images  through  computers,  which  they  r 
"taught"  to  recognize  various  crops  and  their  conditi 



30         50  7 



1 30  1 


4  - 

pn  eye,  a  tank  looks  like  the  picture  in  Frame  I.  But  to  a  computer,  the  picture  is  simply  a  large  array  of  numbers  stored  in  its  memory.  It  has  to 
j  data  to  "recognize"  the  tank.  In  Frame  2,  it  analyzes  light  intensities  of  the  picture.  In  Frame  3,  it  manipulates  its  stored  data  to  identify  edges  of 
d  in  Frame  4,  it  has  eliminated  background  and  now  has  abstract  edges  and  shapes  from  which  it  can  proceed  to  recognize  the  tank. 

,  this  valuable  technology  enables  Lockheed  to 
le  the  size  of  world  crops. 

jating  by  images. 

[o  you  navigate  an  unmanned  vehicle  when  an 

(jidance  system  is  too  expensive? 

ay  is  with  an  image-based  system  being  developed 


|iuman  pilot,  the  computerized  system  will  "read" 
of  cues,  like  woods,  ridges,  and  hills.  It  will  recog- 
le,  for  instance,  even  when  iced  over  or  shrunken 
it.  With  this  input,  along  with  other  data  such  as 
and  compass  readings,  the  computer  will  weigh 
jjrmation  and  initiate  accurate  navigational  orders, 
[g  human  eyes  that  can  tell  a  lake  from  a  hill,  the 
Fwill  rely  on  mathematical  descriptions  of  topo- 
?atures.  These  descriptions,  involving  such  features 
pr  brightness  contrasts,  will  "teach"  the  computer  to 
(react  correctly  to  the  three-dimensional  world. 

nating  X-ray  inspection. 

Lng  subtle  differences  or  flaws  shown  by  X-ray 
bhs  has  traditionally  been  a  slow,  tiring  job  for 
pecialists,  particularly  in  industry. 
Lv  Lockheed  has  developed  an  Automatic  X-ray 
In  System  —  AXIS —that  examines  X-rays  by  the  thou- 
kreat  speed.  It  converts  X-ray  images  into  numbers  and 
p  the  results  against  established  norms,  thus  isolating 
[Vith  quick,  tireless  repeatability,  it  makes  accept/ 
:isions  and  records  the  data  on  magnetic  tape. 

First  developed  for  the 
defense  industry,  AXIS 
can  be  easily  adapted 
to  medicine  and  other 
industries.  It  will  be 
increasingly  important 
in  applications  where 
large  numbers  of  images 
or  articles  must  be 
checked  fast  for  subtle, 
critical  variations. 

Arrow  points  to  a  defect  revealed  in  an  AXIS 
X-ray  image  of  an  artillery  shell  casing. 

Image  processing:  the  future. 

If  a  system  of  sensors  and  computers  can  recognize 
instantly  the  movement  of  tanks  or  scan  the  ground  below  to 
guide  an  unmanned  vehicle,  cannot  more  advanced  systems 
be  developed  to  guide  surgeons  as  they  operate?  Cannot 
systems  such  as  AXIS  lead  to  immense  improvement  in  the 
quality  of  American  products? 

Great  as  have  been  the  advances  in  image  processing,  it  is 
a  field  only  now  coming  into  its  own,  and  Lockheed  knows 
how  to  develop  this  emerging  technology. 


For  more  information  about  Lockheed,  write  for  the 
1981  Annual  Report  Highlights  to  A.C.  Melrose, 
Lockheed  Corporation,  P.O.  Box  551,  Burbank,  CA  91520. 

Experience  and  scope  keep  A&J 
pre-eminent  in  the  energy  field. 

For  over  half  a  century,  the  innovative 

For  over  half  a  century,  the  innovative 
leader  in  energy  insurance  brokerage  has 
been  Alexander  &  Alexander. 

Early  on,  we  pioneered  new  insurance 
coverages  for  the  developing  coal  and  gas 
businesses.  Played  a  catalytic  role  in  help- 
ing to  create  the  insurance  capacity  needed 
to  cover  incredibly  high-cost  energy  nsks. 
And  met  the  burgeoning  and  increasingly 
complex  global  and  domestic  needs  of  de- 
manding oil  clients,  from  integrated  multi- 
nationals to  smaller  independents. 

Today,  our  National  Energy  Division 
keeps  A&A  the  foremost  energy  insurance 
broker.  This  crack  team  of  technical  experts 
offers  you  the  most  comprehensive  services 
available,  with  m-depth  expenence  in  every 
energy  area.  Oil.  Gas.  Coal.  Utilities.  Nuclear 
power.  Shale  oil.  Tar  sands.  Synthetic  fuels, 
solar  and  other  alternative  energy  sources. 
Pipelines.  Marine.  Storage  and  distribution. 
And  contractor  and  supplier  services. 

Energy  services 
pinpointed  to  client  needs. 

Because  members  of  our  National 
Energy  Division  are  strategically  located  at 
key  energy  centers  across  the  country,  it  is 
easy  for  local  offices  to  draw  upon  the 
expertise  you  need,  no  matter  what  energy 
area  you  specialize  in.  Together,  we'll  help 
analyze,  design  and  service  custom-made, 
cost-efficient  risk  management  programs. 

In  energy,  as  in  other  industries,  we 
view  financial  risk  through  the  client's  eyes. 

We  think  a  big  reason  A&A  has 
become  one  of  the  largest  and  most  trusted 
insurance  brokers  worldwide  is  that  we 
work  the  same  way  with  every  client.  From 
the  client's  point  of  view. 


From  the  client's  point  of  view. 


Behind  the  Figures 

;search,  and  a  professor  at  the  Uni- 
;'sity  of  Vienna,  Austria  is  in  good 
;ipe,  with  inflation  at  5.5%  in  1981 
d  declining,  unemployment  at  3% 
d  the  GNP  growing  at  2%. 
ieidel  has  one  caution,  though,  for 
b  U.S.  companies  he  is  wooing, 
ice  WWII,  he  explains,  there  has 
en  a  "social  partnership"  between 
;  trade  unions  and  employers,  re- 
tting in  a  great  emphasis  on  what  a 
mpany  owes  its  labor  force  when 
siness  is  tough.  "At  times,  employ- 
s  have  to  keep  workers  on,  rather 
an  lay  them  off,"  he  says.  "We  don't 
te  hire-and-fire." — Howard  Banks 

A  "black  box"  for  gems 

[re  years  ago  Jacques  Voorhees  de- 
fied he  wanted  to  computerize  the 
^hly  fragmented  diamond  indus- 
r — where  traditionally  prices  are  set 
sight  and  contacts  are  made  by 
)rd-of-mouth.  Diamond  dealers  told 
m  he  was  crazy. 

Today,  some  of  those  same  skeptics 
ibscribe  to  Polygon  Network, 
rmed  several  months  ago  as  a  joint 
nture  between  Voorhees'  small 
ew  York  company,  Polygon  DTN 
c,  and  AutEx  Systems,  a  division  of 
:rox.  For  a  monthly  fee  of  $850,  a 

canes  Voorhees  of  Polygon  DTN 
olishing  rough  edges. 

subscriber  receives  unlimited  access 
to  Polygon's  national  computer  net- 
work, which  functions  much  like 
NASDAQ's  over-the-counter  trading 
system.  Members  can  sell  their  offer- 
ings on  the  computer,  while  buyers 
can  scan  the  listings  to  see  if  a  desired 
stone  is  available.  If  the  subscriber 
chooses,  he  can  clear  a  sale  through 
Polygon,  for  a  fee  of  $100. 

Voorhees,  a  30-year-old  University 
of  Texas  graduate  who  took  a  dia- 
mond-grading course  and  started  his 
venture  with  $10,000  borrowed  from 
his  father's  Iowa  farm-equipment 
business,  credits  the  bear  market  in 
gems  with  his  initial  success.  "If 
there's  a  guy  in  Great  Falls,  Mont, 
who's  interested,  you  want  to  know 
about  him  right  away,"  he  explains. 
"If  you  can  save  yourself  27  phone 
calls  to  brokers,  so  much  the  better." 

Polygon  bills  itself  as  a  neutral  sup- 
plier of  information  and  a  clearing- 
house for  those  who  want  to  buy  and 
sell  in  anonymity.  In  a  business  where 
five  appraisers  can  come  up  with  five 
different  estimates  of  a  stone's  worth, 
Voorhees  confines  his  data  to  size, 
shape  and  other  physical  matters.  The 
emotion  he  leaves  to  buyer  and  seller. 
Monthly  rental  fees — from  the  likes 
of  Zale  Corp.,  the  Gemological  Insti- 
tute of  America,  Leser  Industries  and 
about  90  other  subscribers  so  far — 
will  allow  Polygon  only  to  break  even. 
Profits  depend  on  trading  fees.  Sellers 
who  want  to  unload  a  stone  quietly, 
Voorhees  hopes,  will  pay  for  privacy. 

The  company,  however,  offers  no 
special  terms  or  trial  offers,  a  depar- 
ture in  a  business  where  haggling  is  a 
way  of  life.  Voorhees  says  his  associ- 
ation with  Xerox  comes  in  handy 
here:  "I  say  to  a  guy  who  is  trying  to 
bargain,  'If  it  were  up  to  me,  you'd  get 
a  break.  But  you  know  how  those  guys 
at  Xerox  are.'  " — Barbara  Rudolph 

Flowering  in 
the  Sunbelt 

"One  thing  about  life  insurance  has 
not  changed,"  says  W.  Ashley  Ver- 
lander.  "It  must  be  sold — you  can't  sit 
around  and  wait  until  someone  calls 
you  to  order  a  policy  like  a  pizza." 

Verlander  knows  whereof  he  speaks. 
He  is  president  of  American  Heritage 
Life  (1981  revenues,  $160  million;  life 
insurance  in  force,  $7.7  billion).  Since 
1957,  the  year  after  AHL  was  founded 
in  Jacksonville,  Fla.  by  Verlander  and 
Claude  Kirk  (later  governor  of  Florida) 
with  $505,000  from  17  investors,  the 
company  has  had  continual  increases 
in  total  income. 

From  the  beginning  Verlander  start- 
ed selling  by  courting  companies  to 

sign  up  employees  for  automatically 
deducted  payroll  allotment  insurance. 
Now,  more  than  2,700  companies  are 
on  the  rolls  (with  40%  of  their  em- 
ployees, on  average,  in  AHL  plans). 
Verlander  says  93%  of  these  policies 
are  the  much  more  profitable  perma- 
nent insurance  rather  than  term.  The 

America)!  Heritage  Life's  Verlander 
Go  where  it's  tough. 

lapse  rate  for  this  type  of  insurance  is 
considerably  lower  than  the  industry 
average  because  an  employee  has  to 
make  a  real  effort  to  drop  the  cover- 
age. AHL  will  write  accident  and 
health  policies  only  if  a  group  has  100 
or  more  members  and  if  it  buys  group 
life.  AHL  also  is  pushing  for  higher 
deductible  levels — giving  employees  a 
real  incentive  to  keep  down  claims. 
The  higher  deductible,  says  Ver- 
lander, is  the  most  effective  tool  in 
controlling  costs. 

The  company  decided  back  in 
1972  that  inflation  and  high  inter- 
est rates  would  be  around  a  while. 
So,  AHL  decided  not  to  let  its  bond 
portfolio  exceed  six  or  seven  years 
in  average  maturity.  Its  mortgage 
loan  investments  are  confined  to 
Ginnie  Maes,  and  only  16%  of 
AHL's  total  investments  are  in  un- 
profitable 6%  policy  loans. 

Verlander,  60,  president  of  AHL 
since  1962,  points  with  pride  to  the 
company's  southern  roots.  Jackson- 
ville was  chosen  as  headquarters  for 
three  reasons  back  in  1956,  he  ex- 
plains: No  ordinary  life  insurance 
company  had  headquarters  in  the 
Southeast;  a  number  of  potential  cor- 
porate customers  were  headquartered 
there;  and,  since  Florida  had  the  most 
stringent  insurance  laws  in  the  re- 
gion, it  wasn't  a  likely  place  to  have 
much  competition. — Stanley  W.  Angrist 

)RBES,  OCTOBER  11,  1982 



Meet  a 
Billion  Dollar. 
Energy  Corporation 
Committed  To 

The  Utility  Business 

We  re  ONEOK  Inc.  (pronounced  one-oak),  a  diversi- 
fied energy  corporation  involved  in  the  utility  business, 
exploration  and  production,  natural  gas  processing,  con- 
tract drilling,  and  more.  We  have  a  strong  commitment 
to  the  utility  business.  Our  Oklahoma  Natural  Gas 
Company  is  the  nation's  7th  largest  integrated  natural  gas 
utility.  We  have  major  new  investments  in  pipeline  proj- 
ects. Our  gas  supply  is  among  the  best  in  the  nation. 
ONEOK.  Our  NYSE  symbol  is  OKE.  Perhaps  it's  time 
you  knew  more  about  us.  Ask  your  broker. 


For  our  Annual  Report,  write:  P.  O.  Box  871,  Tulsa,  OK  74 102 

The  Forbes/WUshire  5000  Review 

12  month  closeup 

Market  Value  of  Wilshire  5000: 
$1,255.7  billion  as  of  9/17/82 

A  Nl  } 

ire  come  the  cherry  pickers.  Despite  some  confusion 
long  professionals  about  this  summer's  sudden  market 
lly,  the  indexes  continue  to  suggest  the  bull  market  is 
al — and  expanding  on  cue.  The  Wilshire  5000,  the  best 
dicator  of  broad  activity,  climbed  marginally  in  the  past 
ro  weeks.  The  o-t-c  index,  however,  showed  the  biggest 
mp,  up  3.5%  from  the  prior  two-week  period.  And  for 
e  past  four  weeks  the  Amex  index  outpaced  the  others. 
This  is  typical  of  previous  long  rallies.  When  the  blue 
dps — best  monitored  by  the  Dow,  which  is  now  falling 
ck  slightly — become  fully  priced,  investors  begin  shop- 

ping elsewhere.  First  it's  the  NYSE,  then  the  Amex  and 
finally  the  o-t-c  market. 

What  are  people  buying  over-the-counter?  Companies 
like  Paraho  (oil  shale  recovery),  Billings  (hydrogen  re- 
search) and  Fonar  (medical  scanning  equipment)  show  up 
among  the  percentage  gainers.  In  short,  the  same  sort  of 
technology-  and  energy-related  issues  that  have  been  pop- 
ular over  the  past  two  weeks  on  the  NYSE — just  smaller 
companies  with  less  float.  The  traditional  cherry-picking 
has  begun.  This  is  the  first  sign  that  individuals  and 
smaller  institutions  are  getting  into  the  game. 

Close-up  On  The  Equity  Markets 

Performance  of  six  leading  indexes 

'ercent  change 



Dow  Jones 


Amex  Market 



500 1 



Value  Index 


in  last  4  weeks 







ii  last  52  weeks 







Stock  performance  based  on  five  key  investor  yardsticks 

Percent  change 


P/E  multiple 

Dividend  yield 

Growth  profile3 

Share  price 



over  25 

under  5 

over  7.5% 




over  $40 

under  $4 

in  last  4  weeks 











n  last  52  weeks 











y  Not  available, 
ised  on  sales 

stock's  sensitivity  to  overall  market  movement  High-volatility  issues  have  wide  price  fluctuations,  low-volatility  issues  are  more  stable, 
quantitative  evaluation  of  a  stock's  growth  image,  determined  by  Wilshire  Associates. 

3te:  All  data  for  periods  ending  9/17/82.  Prepared  by  Wilshire  Associates,  Santa  Monica,  Calif. 
3RBES,  OCTOBER  11,  1982 


Where  The  Action  Is 

Energy  on  the  upswing.  After  the  worst  52-wcek  perfor- 
mance of  any  sector,  energy  issues  are  beginning  to 
breathe  life.  Energy  showed  the  second-largest  gains  over 
both  the  last  two  and  the  last  four  weeks.  Spot  oil  prices 
and  heating  oil  prices  are  on  the  rise,  and  the  result  is 
sudden  action  in  some  of  the  oil  issues. 

Oil  and  gas  exploration  stocks  showed  up  in  the  pe 
centage  gainers,  including  Damson  Oil  and  Wilshire  Oi 
Other  big  movers  were  Tosco,  a  refiner,  and  Pionee 
which  is  big  in  natural  gas.  The  two-week  biggest  dim 
however,  came  from  the  finance  sector.  The  leaders  thei 
are  Merrill  Lynch  and  other  brokerage  houses. 

Percent  change  in  last  52  weeks 

Percent  change  in  last  two  weeks 

Capital  goods 

t  25 

0  "N»-v 


1  1  1  1  1  1  1  1  !  1  1  1  1 

1  1  1  1  1  1  1 



'81       1  '82 


+  25 



1  1  1  1  1  1  1 

1  1  I  1  1  1  1 

II  I  1  1  1  1  1  1  1  1  I 

'81  1 



+  25 


I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  1  I  I  I 



Consumer  durables 


I  II  II  I  I  I  I  I  I  I  I  I  I  I  I  II  I  I  I  I  I  I  I 
'81  ""> 





I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I 






I  I  I  I 

I  H  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I  I 



+  25 


I  I  I  I  I  1  I  I  I  I  I  I  I  I  I  I  I  I 

I  I  H  I 



What  The  Analysts  Think 

The  ride  is  over.  Figuring,  perhaps,  that  the  fast  ride  up 
on  the  brokerage  stocks  is  over,  analysts  moved  financial 
issues  to  sixth  place  from  second.  Consumer  nondura- 

bles,  the  52-week  darling,  also  fell — tumbling  to  seven! 
place  from  first.  Now  watch  capital  goods,  the  hard  coj 
of  any  recovery,  which  has  moved  up  smartly. 







2  weeks  ago 

4  weeks  ago 







Capital  goods 

























Consumer  non-durable 





Raw  materials 





Consumer  durables 




Opinion  ratings  are  ranked  on  a  scale  of  1  (strong  buyl  to  5  (strong  sell)  Data  reflect  the 
views  of  200  institutional  analysts.  The  consensus  of  opinion  graph  is  the  composite 

rating  of  1,200  stocks,  while  the  sector  breakdowns  correspond  to  industry  groul 
gTaphed  above.  All  figures  are  weighted  for  market  capitalization. 

Note:  All  data  for  periods  ending  9/17/82.  Prepared  by  Wilshire  Associates,  Santa  Monica,  Calif 


FORBES,  OCTOBER  11,  19 

Not  all  of  today's 
entrepreneurs  are  here 

in  Silicon  Valley. 

If  we'd  been  doing  our  work  on  voice 
recognition  in  Silicon  Valley,  perhaps  you'd 
think  of  us  more  as  entrepreneurs. 

Because  voice  recognition— teaching 
computers  to  tell  one  person's  voice  from 
another— is  an  exciting  new  technology. 

The  kind  that  made  Silicon  Valley. 

Voice  recognition  is  a  technology  with 
enormous  industrial  and  military  potential. 

And  at  ITT  we've  developed  it  to  the 
point  where  it's  close  to  being  introduced 
in  commercial  markets. 

ITT  is  International  Telephone  and 
Telegraph  Corporation.  Very  decidedly  a 
high-tech  company.  c 

We're  investing 
in  the  future.  What  are 
you  investing  in? 

-4*  S'- 

1982  International  Telephone  and  Telegraph  Corpor 

320  Park  Avenue,  New  York,  N  Y  10022,  US  A. 


The  markets  arerit  supposed  to  behave  the 
way  they  do  today.  That's  why  Wall  Street 
professionals  arent  as  happy  as  you  think. 

An  old  game 
with  new  rules 

By  Priscilla  S.  Meyer 

WHEN  IN  A  MATTER  of  Weeks 
the  stock  market  jumps  200 
points,  bond  prices  almost 
keep  pace  and  gold  jumps  a  whopping 
60%,  professional  traders  must  be  get- 
ting rich.  Right?  Not  really. 

Many  pros  pulled  into  the  black  on 
the  leaping  markets,  but  some  lost 
money  and  more  than  a  few  are  spend- 
ing sleepless  nights  (see  p.  132).  One 
Wall  Strecter,  who  repeatedly  sold  the 
stock  market  index  short  and  bought 
tons  of  cotton  futures,  put  a  gun  to  his 
head  and  pulled  the  trigger.  Markets 
are  moving  in  ways  that  have  no  par- 
allel in  the  memories  of  the  pros. 

Listen  for  a  moment  to  Jay  Herman, 
a  longtime  commodities  trader:  "My 
instincts  keep  telling  me  to  short  the 
stock  market.  You  can't  have  all  these 
things  happening  at  once.  Something 
is  wrong  with  the  tandem.  Look  at  the 
commodities  futures.  In  the  last  bull 
market  wheat  and  corn  were  strong. 
Now  grains  are  at  their  lowest  in  a 
year.  Sugar  is  hitting  new  lows.  Cop- 
per is  somewhat  above  its  low,  but 
cotton  made  a  new  low.  It's  so  totally 
new  to  me  that  I  am  trying  to  fathom 
what  it  means." 

If  the  stock  market  says  things  are 
going  to  get  better,  why  is  the  gold 
market  (which  rises  on  inflation  and 
other  bad  news)  saying  that  things 
are  going  to  get  worse?  And  why,  at 
least,  aren't  the  other  commodities 
(which  also  respond  positively  to  the 
prospect  of  inflation)  going  along 
with  gold? 

Perhaps  because  of  all  this,  there  is 
talk  that  the  stock  market  could  col- 
lapse to  its  pre-August  levels.  The 
composite  opinion  of  securities  ana- 

Baffled  W  all  Street  traders 

What's  wrong  with  the  tandem? 

lysts  has  tipped  in  a  bearish  direction 
(see  p  236).  Then  there's  the  steady 
flow  of  bad  news  from  Washington — 
rising  unemployment,  sagging  sales 
and  reduced  industrial  production. 
It's  hard  to  understand  how  a  stock 
market,  which  some  say  has  already 
discounted  a  recovery  that  may  not 
occur,  could  help  but  tumble.  Hard, 
but  not  impossible. 

The  trick  is  that  new  rules  apply. 
Something  genuinely  different  is  hap- 
pening that  is  sending  economists 
back  into  the  history  books:  a  disinfla- 
tionary recovery. 

Look  at  personal  balance  sheets. 
Typically,  when  a  recession  ends, 
consumers  are  burdened  with  debt — 
but  not  this  time.  American  consum- 
ers have  come  through  the  1982  reces- 
sion with  credit  accounts  in  the  best 
shape  since  early  1974.  The  New  York 
State  Bankers  Association,  for  exam- 

ple, says  consumer  credit  dcfaujl 
among  New  York  banks  were  3%  I 
under  for  the  four  months  ending  6 
Inly.  That's  the  lowest  since  the  pjl 
1975  recession  month  of  June  1971 
Retailers  such  as  Sears,  Roebuck  com 
cur  that  credit  accounts  have  nevi| 
been  in  better  shape.  Consumers  ha|| 
had  the  capacity  to  buy  throughoi 
the  1982  recession;  they  arc  simp 
showing  restraint. 

Now  look  at  buying  patterns.  Pej 
pie  are  starting  to  spend  again,  but 
ways  more  like  the  Thirties  than  tl 
Sixties  or  Seventies.  Retailers  half 
discovered  over  the  past  two  yea 
that  "background"  sales  arc  cvapors 
ing.  Customers  are  now  coming  in 
stores  for  advertised  items  and  thq 
leaving  without  making  armfuls 
impulse  purchases.  Buying  patten 
have  changed  dramatically,  but  tl 
seeds  were  planted  in  the  1975  rcce, 
sion,  not  this  one. 

What  all  this  means  is  that  tl 
economy's  rebound  will  be  sic 
and  less  dramatic  than  in  the  past- 
but  ultimately  more  solid. 

The  fact  that  consumer  spendu 
isn't  surging,  of  course,  troubles  W3 
Street's  bulls.  But  they  can  tal 
comfort  from  another  encouragm 
trend.  The  international  banking  syi 
tern  is  shaking  so  hard  that  the  U.i 
marketplace,  with  its  prospects 
slow  but  solid  growth,  looks  vei 
good  indeed.  "I  suspect  that  what  vj 
are  seeing  is  not  only  the  panic 
the  underinvested  but  also  the  flig] 
into  stocks  of  wealthy  individua 
from  all  over  the  world,"  obscrvi 
Barton  Biggs,  Morgan  Stanley 
economist.  "The  price  of  gold  is 
60%  in  a  few  months  because  peopt 
are  buying  gold  for  the  same  reasq 
they  are  buying  stocks  and  goverj 
mcnt  bonds.  It  is  a  flight  into  qui 
lty.  Suddenly  a  certificate  for  13, 0( 
shares  of  General  Electric  or  IBi 
seems  as  safe  and  liquid  as  a  millioi 
dollar  CD  of  any  bank." 

If  Biggs  is  right,  the  stock  market 
not  about  to  collapse  anytime  soon, 
general  he  predicts  that  "quality  lonl 
term  financial  assets  are  going  a  \\ 
higher,"  while  "lower-quality  compi 
nies  are  going  to  have  trouble  gettiit 
money  to  finance  their  growth,"  eve 
where  they  spot  emerging  deman 
Pressure  on  the  banks  is  going  1 
make  lenders  a  lot  pickier. 

In  a  matter  of  only  a  few  month 
the  market  has  moved  from  bit 
chips  to  emerging  issues  on  the  smal 
er  exchanges  (see  p.  235).  Institutior 
also  are  starting  to  dabble  in  the  stroi 
ger  oil  stocks.  If  the  recovery  is  rea 
although  slow,  can  oil  possibly  g 
lower?  ■ 


FORBES,  OCTOBER  11,  1981 

Your  Daily 

Your  Daily 
International  Newspaper 

wspaper  on  the  left  you  know,  the  one  on  the  right 
ght  not.  The  Financial  Times  is  the  primary  source 
riess  information  for  European  and,  increasingly, 
id  other  world  business  leaders, 
fact,  to  ensure  you  do  receive  a  complete  picture 
nternational  business  world  we  have  255  specialist 
lists  and  18  foreign  bureaus  around  the  world, 
three  times  as  many  foreign  bureaus  as  the  paper 

sver  before  has  international  competition  been  so 
lor  the  need  for  American  executives  to  get  a  fast 
ep  view  of  the  international  business  world  been 

lat's  why  the  international  edition,  printed  in 
urt,  leaves  for  New  York  ahead  of  the  sun  on  a 
flight,  connects  with  our  delivery  system  and  is 
shed  to  you. 

Financial  Times 

Europe's  business  newspaper 
now  for  the  International  American. 

I'd  like  to  receive  the  Financial  Times. 

□  1  year  Monday  through  Friday:  $300 

□  1  year  Monday  through  Saturday:  $365 

□  6  months  Monday  through  Friday:  $150 

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□  Send  me  a  sample  copy 

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Mail  to:  Financial  Times,  FT  Publications,  Inc. 

75  Rockefeller  Plaza,  New  York,  NY  10019 

Or  call:  1-212-489-8300 

Statistical  Spotlight 

Blue  chips  are  pacing  this  rally,  but  lots  of 
secondary  stocks  are  having  a  rough  time. 
Will  they  be  tomorrow's  top  performers? 

A  no-name 
shopping  list 

General  Motors,  here's  a  surefire  way 
to  steal  his  thunder.  Start  talking 
about  stocks  like  Alahama  By-Prod- 
ucts, Archie  Enterprises,  Florida 
Automotive  Marketing  or  Rexco  In- 
dustries. If  you  don't  know  what  is  so 
special  about  these  firms,  read  on. 

By  Steve  Kichen 
and  Paul  Bernstein 

A,     Nil,    NEXT    COCKTAIL  l'ARTY, 
when  some  assertive  hotshot  is 
t  boasting  about  his  recent  gains 
in  blue  chips  like  Kodak,  IBM  and 

Over  the  period  from  Aug.  16 
Sept.  14,  investors  were  creating  $18 
billion  in  market  value.  That  sura 
was  one  of  the  greatest  short- terj 
market  moves  ever.  But  obscure  com 
panics  like  those  mentioned  above- 
as  well  as  the  likes  of  Hackensac 
Water  and  Z&Z  Fashions — aetualll 
lost  ground.  They  weren't  alone:  Q 
the  next  six  pages  we  are  presenting 
list  of  276  profitable  firms  that  fare 
the  poorest  during  the  recent  rally. 

Smaller  stocks  often  get  left  behin 
when  the  market  makes  a  majc 
move.  In  the  bull  market  of  the  S\i 
ties  the  Dow  led  the  broader  average 
as  it  marched  upward.  Much  the  sarm 
took  place  in  1974.  Then  the  Dot 
moved  smartly  off  its  low  in  Decern 
her,  but  the  Amex  and  NASDAQ  ir[ 
dexes  didn't  start  to  take  off  until  lat 
January  1975.  But  over  the  long  hau 
the  little  guys  actually  outperforme 
the  blue  chips— the  NASDAQ,  for  en 
ample,  rising  286%  by  May  1981 
compared  with  the  Dow's  72%  gainj 

Don't  bet  your  life  savings  that  thi 
repeat  performance  will  be  exactll 

Losers  today,  winners  tomorrow? 

These  days  most  investors  can  smile  when  they  read 
the  financial  pages.  But  shareholders  in  the  follow- 
ing 276  firms  are  still  hoping  that  their  stocks  will 

join  in  the  fun.  These  companies,  all  profitable, 
were  the  rally's  worst  performers — which  may 
mean  they'll  post  the  biggest  catch-up  gains. 


-Latest  12-month — 






%  change 




tion  (mil) 


Major  Exploration/^// «'  gas  explor,  </er 






$  18.9 


Hackcnsack  Water//m/(r  Utility 









Intcrmedics////<v//<  ((/  products 








Sykes  Datattonicsl computer  equipment 







,  p 

Biosearch  Medical  Prods/ 'medical products 






33.8  ! 


Horizons  Resefktoh/photographh  equipment 







Alo-Scherer  HzahYic&it /proprietary  drugs 








Cable  TV  iaA&l electronics 








HC  A/ insurance 









Intl  Capital  Equipment/finance 







0 /airline 








Mormac  Encrgy/o/7  6  gas  explor,  dei> 






9.0  i 


Separex/ 'industrial  equipment 








Joseph  Dixon  CrucibleA)///<  e  supplies 


26  Vi 






Chef  s  \ni\l restaurants 








Micros  Sy stems/ computer  equipment 

1 16 






Republic  Resources  Tex/o//  <  -  gas  explor,  iter 






Am  Commonwealth  fin/ insurance 

6  Va 







Bonray  Drilling/o/V  &  gas  drilling 








i  ;e  Drill!  my  oil  &  gas  drilling 








Delta  Data  Systems/computer  equipment 








Heritage  Bancorp  Cal/bank  holding 








American  Magnetics/computer  equipment 








Lifesurance  Cotp/insuratU  <• 






3.8  ;| 


STV  LtyjjineKts/engineering  seri  nes 







a:  American  Slock  Exchange    rt:  New  York  Slock  Exchange.    0:  over-the-counter  market    NM  Not  meaningful 

Source  Wilshin  Vsociattt 


FORBES,  OCTOBER  11,  1982 

We  doubled  our  audience  of  Senior  Executives 
in  European  companies  with  250-plus  employees  — 
An  increase  of  50%  over  1980. 

Our  audience  is  distributed 
throughout  Europe  — 
not  concentrated  in  one  country. 

We  have  the  lowest  cost-per-reader — 
Both  black/white  and  4-color. 




'82  OVER  '80     TOTAL      EX.  U.K.  TOTAL     EX.  U.K.  TOTAL  EX.  U.K. 

BUSINESS  WEEK  INTERNATIONAL    50%     23,809  16,790  $.12     $.17  $.18  $.26 

ECONOMIST                                     5        17,240    8,895  .35       .67  .54  1.05 

FINANCIAL  TIMES                              7       43,148  13,897  .56      1.74  .82  2.54 

FORTUNE                                         8        12,417    9,919  .32       .41  .49  .62 

HARVARD  BUSINESS  REVIEW            11        16,985  12,906  .31        .40  .42  .56 

INTERNATIONAL  HERALD  TRIBUNE      5         6,310    5,354  3.30     3.89  7.73  9.11 

INTERNATIONAL  MANAGEMENT         18       21,970  15,722  .21        .29  .30  .42 

NEWSWEEK  INTERNATIONAL            39        16,160  12,707  .47       .60  .80  1.01 

TIME                                                4       20,404  17,231  .69       .82  1.08  1.28 

Cost  efficiencies  based  on  '82  Europe  edition  rates — if  applicable. 

If  we  don't  acknowledge  this,  who  will? 

The  worldwide  business  weekly 


ATLANTA:  (404)  252-0626.  BOSTON:  (617)  262-1160.  CHICAGO:  (312)  751-3700,  CLEVELAND:  (216)  781-7000,  DALLAS:  (214)  742-1747,  DENVER:  (303)  825-6731,  DETROIT:  (3131  352-9760, 
HOUSTON:  (713)  462  0757,  LOS  ANGELES:  (213)  487-1160  MINNEAPOLIS:  (612)  332-7425.  NEW  YORK:  (212)  997-6868,  PHILADELPHIA:  (215)  496-3800,  PITTSBURGH:  (412)  227-3640, 
ST.  LOUIS:  (314)  227-1600,  SAN  FRANCISCO:  (415)  362-4600.  STAMFOR0:  (203)  359-2860.  WASHINGTON:  (202)  624-1265 



Specifically  designed  for  airborne  early 
warning,  its  official  name  is  the  E-2C.  But  it's 
familiarly  known  as  the  Hawkeye. 

And  the  name  is  particularly  appropriate. 
Because  the  carrier-based  Hawkeye  is  the  only 
AEW  aircraft  that  can  see  as  clearly  over  water  as 
over  land.  In  fact,  it's  the  only  aircraft  of  its  kind 
in  the  world. 

On  the  outside,  the  Hawkeye  hasn't 
changed  at  all  from  one  year  to  the  next.  But  on 
the  inside  it's  another  story.  Because  year  after 
year,  we've  made  the  aircraft  do  more  and  more. 
Despite  the  fact  that  advancing  technology 
has  made  electronic  components  smaller  and 
smaller,  the  Hawkeye  is  still  packed  with  radar 
and  computer  equipment. 

With  its  sensing  abilities  and  highly  devel- 
oped electronic  brain,  the  Hawkeye  can  survey 
238,000  square  miles  of  water  or  land  space, 
can  keep  track  of  over  600  air  targets  at  one  time 
and  never  mix  them  up.  By  looking  beyond  the 
horizon  and  relaying  what  it  sees,  the  Hawkeye 
can  alert  and  manage  the  necessary  forces  to 
counter  any  threat. 

Providing  an  eye-in-the-sky  with  capabilities 
like  these  requires  a  host  of  technologies. 
Coming  soon:  an  aircraft  that  takes  off  and  lands 
like  a  helicopter  and  flies  with  the  speed  of  an 
airplane.  So  whether  it's  keeping  today's  aircraft 
pre-eminent  or  making  tomorrow's  unmatched, 
we  have  the  technology  for  the  job  at  hand. 



Statistical  Spotlight 

the  same.  The  big  difference  between 
1974  and  now  is  in  the  relative  stand- 
ing of  the  secondary  issues.  "Between 
1972  and  1974  the  secondary  stocks 
were  in  a  massive  downtrend  and  had 
tremendous  catching  up  to  do,"  says 
Stephen  Leeb,  editor  of  Investment 

Strategist.  In  recent  years,  however, 
secondary  issues  have  helped  buoy 
the  market. 

Not  surprisingly,  with  the  relative 
strength  of  the  Amex  and  NASDAQ 
indexes  in  this  rally,  there,  is  some 
genuine  leadership  in  the  second  tier 
of  the  market.  Issues  such  as  Bor- 
man's,  Pulte  Home  and  Fleetwood 
Enterprises  have  outperformed  the 

major  indexes  by  a  wide  margin.  Bi 
hundreds  of  other  stocks  underpe: 
formed  the  averages,  and  we  decide 
to  set  up  a  computerized  search 
identify  these  laggards.  The  resull 
are  surprising:  Of  the  more  than  5,0C 
issues  covered  in  Wilshire  Associate: 
computer  database,  1,435  failed  t 
show  any  gains  during  the  first  2 
market  days  since  Aug.  16,  1982. 

Losers  today,  winners  tomorrow? 


— Latest  12-month- 

I  ■  I  


Company  1  business 


8/1 A/k9 

°/o  cll3ngc 



I  It  IU 

tion  ( rni. 


US  Energy  Cotp/mining 



/  72 

1  ^  70/ 
—  Id. /  /o 



<C    1  7  0 

j>  1  r  .y 


Hatataml  electronics 



1  /L  /I 

—  10. 4 


1  3  0 


Insyte/Vtw/  estate,  oil  &  gas 








University  Real  Estate  Trust/#£/7 









Windsor  Life  Ins  Am/ 'insurance 









Bingo  recreation 

Z  74 

1 1/ 

1  C  /I 

—  ID. 4 




"2  7 



Cymaticolor/q//'/tc  equipment 



1  £  /I 
—  1 3.4 

IN  M 



General  Production/o/V  &  gas  explor.  dec 








Levin  Computer/fo/wp/ //<.'/"  services 









Allegheny  &  Westn  Engy/o/7  &  gas  explor.  dec 


4  78 







Erb  humotxl  building  materials 

Q  1/, 
0  72 

1  n 

—  13.U 


1  2 


7  7 


Kloss  \  lacol  electronics 

A  1/ 


—  1  r>.U 





Marsh  Supermarkets/^rocwT  stores 





6  * 




Gaylords  National/retailing 









New  York  Testing  Labs/ laboratory  services 









Colonial  Bancorp//w«£  holding 

l  1  1/ 

14  74 

1  a  n 
— 14. U 

a  1  7 

o.i  f 



14.  / 



Atlan-Tol  Inds/ industrial  equipment 


4  72 

1  3  0 
—  lo.y 

1  A 
1 0 

3  1 
O.  1 


Littlefield,  Adams/apparel 









Global  Natural  Res/o//  &  gas  explor,  dec 









Kyle  Technology/w«Y/ca/  equipment 









Pengo  Inds/o////t7(7  equipment  and  services 

O  78 


—  ll.y 






Summit  Oilneld/o//7«7rt  services 



—  ll.y 




Peek  N  Peak  Rec/ recreation 








Winkelman  Stotesl  apparel 









Biospheiicslpub/isbing  &  tech  svs 









ADM  Inds  1 household  products 


0  1/. 
Z  74 

1  1  1 

n  1 0 

U.  1  y 

1  1 
1  1 

1  7 


Astrex/ electronics  distribution 



1  1  1 
—  11.1 

1 . 1  i 


1  7  0 



Florida  Automotive  Mktg/c«//o  parts  distrib 








HRT  Inds/ 'retailing 









RMS  Electronics/ 'electronics 









Rule  lnaslmarine  hardware 




U.l  / 



VY\\J\\\~\3 1  j  \.t\  )Lx  C  1  ■«  >  1  *  l  (/It  r  i<  HI 








Gulf  Resources  &  Chem/metals 








Kimberly  Oil  &  Gas/ 'oil  &  gas  explor,  dev 








American  Cap  Ins/ insurance 

















Savannah  Foods  &  Indslfood processing 









Wausau  Paper  Mills/paper  products 









Multibank  Tinanciallbauk  holding 

30  Vi 








Advance  Circuits/e/cc/ron/cs 










1  lA 





Affiliated  Hosp  Prods/ medical  supplies 









Cibola  Energy  /oil  &  gas  explor,  dev 








Computer  Designed  Systs/ computer  equip 








Computer  Horizons/cowp///er  services 








Saunders  Leasing  Syst/truck  leasing 

2  74 

2  72 







Z&  Z  tashwnslretailing 








Amfec  Indslfood  distribution 








Mid-  'Imerica  Inds/auto  parts  distrib 








a:  American  Stock 

New  York  Stock  Exchange,    o:  over-the-counter  market    NM:  Not  meaningful 

Source  VC'ilsljire  j\ssociaie\ 



/ell-publicized  problems  about  the 
inces  of  several  foreign  nations 
3ed  New  York  City  banks  lead  the 
idard  &.  Poor's  list  of  industry 
ups  that  lagged  the  rally.  Big  Apple 
ks  fell  1.5%.  Groups  that  stayed  in 
black  but  still  underperformed  the 
rket  include:  electric  and  tele- 
>ne  utilities,  steel  companies  and  a 
nber  of  building-related  groups. 

And  our  lists  turned  up  scores  of  trou- 
bled companies  in  areas  such  as  oil- 
field services,  electronics  and  com- 
puter equipment. 

Our  initial  computer  run  eliminat- 
ed the  firms  that  had  stayed  even  in 
terms  of  market  price  and  left  us  with 
595  stocks  that  actually  lost  ground. 
We  then  added  two  refinements:  We 
eliminated  companies  with  negative 

per-share  earnings  for  the  latest  12 
months  and  dropped  stocks  selling  for 
less  than  $1  per  share.  The  accompa- 
nying tables  show  the  276  issues  in 
order  of  their  percentage  decline. 
These  are  the  issues  people  sold  while 
the  overall  market  was  soaring. 

Investors  had  good  reasons  to  shy 
away  from  at  least  some  of  the  compa- 
nies on  our  tables.  Leading  our  list,  for 

Losers  today,  winners  tomorrow? 



Company//;/  isiness 

recent        8/16/82      %  change 

— Latest  12-month- 


tion (mil) 

A  r  p  h  i  p  Fntp rn ricpQ//)///)/ ; </i /no 






$  2.8 


Old  National  Bancotp/bank  holding 









Jim  Walttt/built/ing 









First  Commerce//*///^'  holding 









Crested  Butte  Silver  Mxi/tnining 








Cnitimprf  ial  \v\\\lt(tinl  twocpssino 








CSM  Systems//»tV(f/ fabricating 







Esquire  Radio  &  Electronics/ electronics 









Farm  House  Foods//orW  wholesaling 








McGill  Mfg/ 'industrial  machinery 


27  Vi 






Citi7Pti«  1st  Ranrfirn//j/7n/'  lifiltlitju 

191  UdllLUl  VI  tlt.ll  IK  l.'Uttiltll^ 


23  % 







Anderson  Industries/metal  fabricating 









Alabama  By-ProductsA oal  mining 









Paraho  Development/^//  shale 








Weatherford  Intl/ 'oilfield  equipment 








VJCU 1  ,S             iJTllJII^HJIl    V_-  \J  1  1 1  USUI  It  /  ILL 









Sovereign  Corp/ insurance 









Wells-Gardner  Electronics/e/fc//o;//o 









Guilford  Mills/ textiles 









Health  Care  &  Ret  Co  Am/health  care  sis 








Intl  Inst  A  nnli  pn  Tprn  Ay  mitti iti*v  <t*n 1  it  y>c 

1 1 1  l  I  11191    rV  I J  I)  1 It.  U    A              L  LH 1  ll/ltlL  1    .>C  /  t  (-Lcj 








Johnson  Electronics/tVfcVroracs 








Laser  Precision  Corp/precision  instruments 









Life  Sciences/// ulustrial  serrices 








Saxton  Products/tVt't7/7cv//  equipment 








T  Ttah  ^lialp  T  anA  ft  IWtTt^/t  ii/  <h/ilp 
y :  idii   7iiuic  Xjctiiu  ot  Liims/tju  s /set  it. 








Vanderbilt  Energy  /oil  &  gas  explor  &  dev 








Visual  Electronics/o///cc  equipment 








Presidential  Realty/rec//  estate 









Bausch  &  Lomb//>ec////>  care  products 









Turf  Paiadise/ racetrack 








Jewelcor  Vac/jewelry  retailing 








Kentucky  Horse  Center/stable  sen  ice 








Bibb  Co/textiles 









Central  Pac  Corp  QaMilhank  holding 









Smithfield  Foods//bcW processing 


5  y% 






Pep  Boys:  Manny,  Moe,  Jack/«///o  parts  retail 









FirstBancorp//;f/;/A'  h<  tiding 

22 '/4 








Amerford  hitl/freighl forwarding 









Dynamics  Research///rccis/o;/  instruments 








Patriot  Bancorporation//;«/M>  holding 









Technicolor///////  processing 









Automatic  Film  Process///////  processing  equip 








Health  Info  Systems/c omputer  services 








Unite!  Video/r/<7tv;  services 








Tesoro  Petroleum// /cV/Wc///// 









Southwest  Bancshares//xr</z&  holding 

20 '/2 








Power  Test  Cotplgasoline  retailing 









First  National  Boston/bank  holding 


24 '/4 







Altius  Carp/metal  fabricating 








American  Stock  Exchange,    n:  New  York  Stock  Exchange.    O:  over-the-counter  market    NM;  Not  meaningful  Source  Wilshire  Associates. 

RBES,  OCTOBER  11,  1982 


Statistical  Spotlight 

example,  is  Major  Exploration,  an  oil 
and  gas  firm.  It  is  currently  involved 
in  several  lawsuits  over  the  value  of 
petroleum  properties  and  controver- 
sies about  the  size  of  its  reserves. 

Then  there  is  Intermedics.  Despite 
company  denials,  investors  were  ap- 

parently worried  that  this  Texas- 
based  medical  equipment  maker, 
whose  stock  declined  more  than  30%, 
could  be  adversely  affected  by  a  gov- 
ernment probe  into  Medicare  abuses 
involving  cardiac  pacemakers.  Mean- 
while, ICH,  a  Kentucky-baSed  insur- 
er, plans  a  stock  reorganization  that 
wasn't  enthusiastically  greeted  by  its 
shareholders.  And  the  filing  for  Chap- 

ter 1 1  by  Manville  Corp.  because 
asbestos  suits  probably  had  a  negati' 
effect  on  Jim  Walter,  another  buildn 
materials  company. 

But  it  wasn't  all  bad  news  that  w 
depressing  these  stocks.  More  th 
70%  of  the  issues  on  our  list  ha1 
market  capitalizations  of  $25  millic 
or  less.  Since  this  rally  has  so  far  be« 
fueled  by  institutions  and  foreign  ii 

Losers  today,  winners  tomorrow? 


-Latest  12-month — 




ft /I  /Wft7 

%  change 


Lr  j 


\  1  i-l  ,1 
I  lclQ 

tion  (mi 


Cambridge  Royalty/o/7  &  gas  royalties 



s  70/ 
—0.  /  /o 

cn  n7 
J>U.u  / 

C      Q  A 
&  0.4 


Daniel  \i\Asl precision  instruments 

12  74 

10  78 

—O.  / 

1  7n 



1  CO/ 
1  .D  /O 

1  117  1 

lot  .6 


Autoclave  Engineers/p/vtls/oM  instruments 


11 Vi 







American  Income  Life  Ins/ 'insurance 


23  % 






Howell  Petroleum/o/7  &  gas  explor  &  dev 


13  Vi 







Steego  (..otplauto  parts  distributor 



— 0.0 


1  J 


LI .0 


Vaughan-Jacklin/rt(t;n<i7//////"#/  products 

1U  /B 

1  1  s/, 

1  1  78 

/:  c 

1  .uz 

1  1 
1  1 

A  A 

1  n  7 

1U.  / 


Aid  Auto  Stores/c////o  parts  retailer 








Boonton  Electronics/precision  instruments 









Genoxa/buildit ig  st tpplies 









j           o       i     l.  /• 

Independent  Bankshatesl  batik  holding 

1 1 1/ 

1  1  74 

1  z 


1  A  C 




Lane  Wood/ 'manufactured  homes 




n  /i  2 


c  1 


NORPAC  Exploration/o/7//e/(/  services 








Oakridge  Exploration/o/7  &  gas  explor  &  dev 








Sterling  Pipe  &  Supply /oilfield  ec/uipment 








H.onsotilhouseh(  >ld  products 

1  7/„ 
I  /& 


 /.  1 

— O.O 



8  1 


West  Chemical  Products/c/xw/ov/S 




it  a 


1 1 

A  O 



Essex  Qotpl industrial  services 








Meenan  Oil/fuel  oil  distributor 









Liberty  Fabrics  NY/apparel 









Meyers  Parking  Systems/industrial  services 

/  74 

0  74 

—0. 1 

■)  2 

Q  7 

y .  / 


Union  Commerce /bank  ho/ding 

1  Q3/ 

T  1 
L 1 

— O.U 

1  1Q 
1  .OD 

1  c 


1  n 
1  .U 

7C  c 


Optimum  Holding!  insurance 








Alba- Waldensian/czppr//  vl 









Carhart  Photo//)7w  processing 









Guli  Interstate/w/.swe'.'tf  services 


Q  1/ 
0  72 

c  0 

— b.y 






Keane/computer  sen  ices 



A  1/ 
4  74 


r\  AO 




2  /I 


Te  a  m  let  ierg\ 1  set  1  ices 








Harcourt  Brace  Jovanovich/pi^fc/j/;;^ 









Eldorado  Bancorp  QaMilbank  holding 









Graham  Mtg/ industrial  equipmetit 


O  7/ 

0  78 

— 3.6 

1  <7 


1  Q 

7  1 

r  .1 


\&ux\\\  electronics 


0  1/ 

r  ✓ 
— 3.0 

n  1  £ 

U.  1  D 

1  A 
1 4 

1  c 
1 .  D 


Equity  Oil/o/7  &  gas  explor  &  dev 









Oil  Securities/o/7  &  gas  explor  &  dev 








Scientific  Inc/ industrial  senices 








Bluefield  Supply Icotistruction  equipment 









Rexco  Inds/constructioti 








Scientific  Leasing/health  care  services 








Scientific  Radio  Systs/ te/ecomm  equipment 









Superior  Gaxd health  care  services 








TEC  Inez 'computer  equipment 









UNA  Cotplsteel  distributor 

■  2% 







McM  Corp/ 'insurance 








<*ank  of  New  York/bank  holding 

39 'A 








miU  i  Group/bank  holding 

23  Vi 








Fabric  WhoIesalers//rt/?m~  retailing 









Federal  Colfood  processing 

21  % 








IVewcor  Inc/ 'industrial  machinery 









L    -iputer  Task  Gioupl computer  services 









Jacl  ot  Enterprises/recreation 







a:  Amenc 


in  Stock  Exchange,    n:  New  York  Stock  Exchange,  o: 

over-the-counter  market 

N.M:  Not  meaningful 

Source  Wilsbire 



FORBES,  OCTOBER  11,  191 

Drs,  the  size  of  these  issues  has 
ced  against  them.  When  profes- 
ils  want  to  move  into  the  market 
they  have  to  buy  big  companies, 
only  a  handful  of  companies  on 
ist  are  closely  followed  by  Wall 
it  analysts.  So  these  weren't  the 
<s  that  brokers  were  pushing 
n  customers  started  asking  what 

New  issues,  too,  are  abundant  on 
our  list.  At  least  65,  or  23%,  are 
stocks  that  were  listed  either  in  1981 
or  1982.  For  example:  Superior  Care,  a 
health  care  services  company,  and 
Quixote,  a  manufacturer  of  highway 
safety  products.  Another  interesting 
point:  Of  the  38  stocks  that  lost  15% 
or  more  in  value,  almost  half  are 
fledgling  companies.  The  speculative 

nature  of  many  of  these  firms  and  the 
severity  of  the  recession  may  have 
encouraged  some  investors  to  bail  out 
during  this  rally  in  favor  of  large  cap- 
italization stocks. 

While  the  price-to-earnings  multi- 
ple of  the  more  than  5,000  stocks 
tracked  by  Wilshire  Associates  is  9.6, 
over  155  of  the  firms  on  our  table  are 
selling  at  less  than  9  times  earnings. 

Losers  today,  winners  tomorrow? 


 Price   — Latest  12-month —  capitaliza- 

lange  Company/business  recent        8/16/82      %  change        EPS  P/E  Yield       tion  (mil) 


Machine  Technology  1  electronics 






$  8.5 


Recoton  Corp/ 'entertainment 








Chicago  Rivet  &  Machine/ industrial  equip 









Cochrane  Furniture//«m//»/-e 









Commercial  Shearing/consiructiori  equipment 









Interchange  State  Bk  N]/bank  holding 









Plant  Inds/ 'containers 








Pneumatic  Scale/packaging  equipment 









Volume  Merchandise/fl/ywre/  retailing 









South  Jersey  Inds/natural  gas  utility 









Wei  b  i  1 1  /hot  isebold  products 








Commercial  Decal/ 'household  products 








Flame  lads/oilfield  equipment 









Swift  Energy/o/7  c~  gas  explor  &  dev 









Universal  Leaf  Tobacco/A >hacco 









Barco  of  California/r/ppe/re/ 









Vacu-Dry  /food  processing 









Pacific  Tin  Consolidated/we/rt& 









BankAmerica  Corp/bank  bo/ding 









Familian  Corp/ industrial  equipment 









Optelecom/  telecom  mm  tici  ttioi  is 








Peerless  Chain/ metal  fabricating 

11 72 








United  Sts  Mutual  Inv  TilRElT 









Energy  Conver  Devices/energy  equipment 









Independent  Bankshates/bank  holding 









Southeastern  Capital/////c/»ce 



-4 .1 






Speed-O-Print  Bus  Machs/q//7ce  equipment 









Wadell  Equipment//«rt(/>/w  tools 









Aztech  Intl  Ltd/heating  equipment 






. — 



Bowl  Amencalbou  ling  centers 









Electro-Catheter  Corp/medical  equipment 








Empire  District  Electric/cVetVr/c  utility 

12  Vi 








Frequency  Control  Prods/ 'electronics 








Great  Amer  Mgmt  &  ln\/real  estate 








Miller  Tech  &  Commun/ industrial  services 








Transworld  Bank  Ca\iill>ank  holding 








Tti-Chemlbousehold  products 









Aero-Flow  Dynamics/e/ec7/vcY(/  equipment 









Early  California  Inds/food processing 








Mattel/ toys 









Chicago  Milwaukee//»/////cow/)cY>/r 

47 Vi 







Concord  Fabiicslapparel 








Jacobson  Stores/ 'retailing 

13 '/2 








Manufacturers  Hanover  Tx/banking 









Michael  Baker  Corp/ 'consulting  services 









Quixote  Corp/ 'transportation  equipment 








Ripley  Co/ 'electronics 









Crest-foam/sf lecia/tv  chemicals 









Intercontinental  Life/ insurance 









Spencer  Cos/footwear,  apparel 








mericun  Stock  Exchange,    n:  New  York  Stock  Exchange-    o:  over-the-counter  market.    NM:  Not  meaningful  Source  Wik/.we  Associates. 

IES,  OCTOBER  11,  1982 


Statistical  Spotlight 

Note,  too,  that  only  a  few  of  the 
stocks  with  the  biggest  price  depreci- 
ations are  currently  paying  dividends. 
Overall,  about  20%  of  the  stocks  in 
the  table  yield  5%  or  more. 

So  far,  of  course,  Wall  Street  has 

neglected  these  stocks  despite  posi- 
tive earnings  and  an  assortment  of 
bargain  basement  multiples.  It  could 
just  be  that  buried  among  Atlan-Tol 
Industries,  Peek  N  Peak  Recreation 
and  scores  of  other  less-than-house- 
hold  names,  there  lurks  the  next  IBM 
or  Polaroid. 
Then,  too,  if  you  happen  to  find  a 

gem  or  two  on  these  lists,  it  often 
doesn't  take  much  in  the  way  of  good 
news  for  a  low-priced  small-capital" 
ization  stock  to  make  a  significant  up 
side  move. 

But  remember  this:  Today's  market 
is  very  different  from  that  of  1974,  so] 
there  is  no  guaranty  that  history  will 
repeat  itself.  ■ 

Losers  today,  winners  tomorrow? 



Company  /business 

recent        8/16/82      %  change 

-Latest  12-month — 

Yield        t ion  (mil! 


St  Louis  Steel  Casting/.s/cv/ 







$    2.1  1 


Tasty  Bakinglfood processing 






18.2  1 


Fiduciary  Trust  Co  NY/finance 

A  1 

A  A  1  / 

44  vi 

—6  A 




7  A 

I A 

18.9  j 


First  Bancorp  RfR/hanfe  holding 

28  Vi 

29 'A 





18.0  ] 

L  aser  Inds  Ltdlmedical  equipment 






21.9  | 


Rocky  Mountain  Nat  Gas/ '; laiural  gas  utility 









Monf ort  of  Colorado//oo<7  processing 






35.5  j 


Motor  Club  of  America/ insurance 





1  1 

n  no 


1  A 

1 .4 

17  1 

1  1 .1 

Seaboard  Corp/ food  processing 







37.9  1 

Three  D  Departments/^/yMrtV  retailing 







8.1  1 


Begley  Drug  Col  drugstores 







4.3  I 


Bell  Petroleum  Services/ 'oilfield  services 






8.7  I 


Chesapeake  Utilities/natural  gas  utility 


1  CI/ 

Id  Vi 




1  n  7 
1U.  f 

7.2  1 

ICH  Cotpl  insurance 







45.1  1 


Time  Sharing  Resources/ctimpuier  services 






8.6  ] 


IMC  Magnetics!  i>idustrial  machinery 









Penn  Virginia  Corp/coal  mine  royalties 







116.9  | 


Stocker  &  Yale/ precision  instruments 



1  i 
— 6.1 

1    A  A 

1 .44 



1. 1 

7  1  1 
1 .1  1 


Tellabs  Inc/ telecommunications  equip 






97.3  | 


CDI  Corp/ industrial  services 






16.1  I 


Continuum/computer  software 









Gulf  Nuclear/specialty  chemicals 







10.2  1 


Vagabond  Hotels//»o/f/.< 

1  o 

16  VI 

— 6.U 

6. Id 


1  c  n  i 

iD.y  t 


Emett  &  Chandler  Cos/insurance 






15.0  j 


Imperial  BancoTplt)anl>  holding 

8 1/4 

8 1/2 




61.6  • 


McRae  lads/footwear 









Paul  Mueller  Col  industrial  machinery 









CR  Gibson/publishing 







10.8  1 


Security  Life  Ins  GAIinsurauce 




1 .09 





Tony  Lama> footwear 


1 7% 







American  States  Life  \nsl insurance 









Hungry  Tiger i 'restaurants 







14.5  | 


Swedlow /plastics 







11.2  ] 


Contock/sand  &  gravel 







54.4  i 


Mangood  Corpl industrial  equipment 






4.3  i 


Jefferson  Natl  Life/ 'insurance 

36  Vi 








O  EA/aei  vspace 









Emerson  Radio/electronics 








Protective  Corp/ insurance 







97.6  , 


Alpha  Microsystems/(.ow/>///tr  equip 


5 '/a 






Colonial  Gas/gas  utility 


10 '/4 







Fisher  Foods/^roce/T  stores 







49.7  ' 


Mohasco  Carpi  furniture  &  carpeting 


10 '/4 






TeXeConceptsI  telecommuu  equip 


20  % 






Dart  Drug/ 'drugstores 








Glassrock  Med  Svs/ 'healthcare  sys 









Foxteclrailroad  equip 

]  0% 








Jefierson  Bancorp/bank  ho/ding 






14.4  1 


Galveston  Houston! oilfield  equip,  svs 









Spectru  m  Control/tVcjc7ro;7/cs 









United  Bankers!  bank  holding 







27.5  1 


Networks  Elecironic/«tro.sp«ce 







a.  American  Stock  Exchange    a  New  York  Mock  Exchange,    o:  over-the-counter  market    NM  Not  meaningful  Source:  Wrtshtre  AssociaU 


FORBES,  OCTOBER  11,  1982 

Your  legacy:  A  way  of  life. 

du  love  the  wide  open  spaces?  Clean  air?  The  beauty  of 
e?  Are  they  a  part  of  the  legacy  you  have  planned  for 
loved  ones? 

vning  a  large  piece  of  land  in  America  is  possibly  the 
important  decision  you  will  ever  make.  Not  only  will 
injoy  the  rare  privilege  and  pleasure  of  owning  sizable 
iland  today,  it  can  remain  a  private  corner  of  America 
e  future  history  of  your  family.  Forbes  Wagon  Creek 
h  is  offering  just  404  people  the  unusual  opportunity 
rchase  a  sizable  spread  of  land  right  next  to  its  gigantic 
ss  Trinchera  Ranch  in  southern  Colorado, 
nimum-size  family  ranches  are  40  acres,  and  vary  up 
acres,  with  prices  starting  at  $25,000.  Down  payment 
low  as  1%  with  monthly  payments  of  $250  including 
ist  at  9% . 

Here  in  the  foothills  of  the  magnificent  Rocky  Mountains, 
with  restricted  access  to  more  than  17,000  acres  (over  26 
square  miles),  you  can  hunt  deer,  elk,  grouse,  and  all  kinds 
of  wild  game  in  season.  Or  you  can  ski  cross  country,  fish 
for  trout,  ride  horseback,  or  just  enjoy  the  breathtaking 
dawns,  sunsets,  and  the  changing  seasons  in  the  shadow  of 
one  of  Colorado's  highest  peaks,  Mount  Blanca. 

This  exclusive  preserve  is  the  perfect  place  for  the  out- 
door-lover in  you,  and  when  passed  on  to  your  children,  or 
your  grandchildren,  your  ranchland  bestows  on  your  heirs 
the  privilege  of  an  unspoiled  way  of  life.  Its  a  very  thoughtful 
way  to  shape  the  futures  of  those  who  will  follow  you. 

For  more  information  on  how  you  can  become  a  part  of 
Forbes  Magazine's  private  mountain  hideaway,  write  or  call 
for  our  full-color  brochure. 


Errol  Ryland,  Manager    Box  303  K    Fort  Garland,  Colorado  81133    (303)  379-3263 

Sangre  de  Cristo  Ranches  Inc  .  developer  This  is  not  an  oiler  to  sell  in  states  where  not  registered  NJA104-0482CO  NAV820068  000039-A  AD18560(b) 
nent  and  offering  statement  has  been  filed  with  the  Secretary  of  State  of  the  State  of  New  York  The  filing  does  not  constitute  approval  of  the  sale  or  lease  or  ofler  for  sale  or  lease  by  the  Secretary  of 
2  or  that  the  Secretary  ol  Slale  has  in  any  way  passed  upon  the  merits  ol  such  offering  A  copy  ol  the  offering  statement  is  available,  upon  request,  from  Sangre  de  Cristo  Ranches  Inc  NYA82-78 

Obtain  the  Property  Report  required  by  Federal  law  and  read  it  before  signing  anything. 
No  Federal  agency  has  judged  the  merits  or  value,  it  any,  of  this  property.  Equal  Credit  and  Housing  Opportunity. 

When  managers  take  over  a  company,  lots 
of  people  win — unless  earnings  cant  cov- 
er interest  payments.  Then  losers  line  up. 


By  Thomas  O'Donnell 
with  Jay  Gissen 

1EVERAGED    BUYOUTS    USC(J    tO  be 
_  safe,  small  and  sure,"  says  one 
I  dealmaker.  "Today  some  are 
too  damn  big  and  dangerous." 

He's  talking  about  those  deals,  so 
popular  with  investment  bankers,  in 
whieh  managers  become  owners  by 
putting  up  very  little  money.  A  com- 
pany's assets  become  collateral  to 
borrow  80%  or  more  of  its  purchase 
price,  while  operating  earnings  pay  off 
the  debt.  "It's  simply  commercial  real 

estate  finance  applied  to  corpora- 
tions," says  the  dealmaker. 

True  enough.  And  look  at  what  has 
happened  to  real  estate  recently.  The 
worry  now  is  that  a  combination  of 
high  interest  rates  and  falling  infla- 
tion may  cause  some  big,  highly  lever- 
aged buyouts  to  go  bust. 

Indeed,  some  deals  are  already  rais- 
ing eyebrows.  Take  Norns  Industries, 
which  was  taken  private  late  last  year 
for  $420  million.  Because  its  oper- 
ations are  heavily  tied  to  the  construc- 
tion and  automotive  industries,  Nor- 
ris  is  hit  hard  by  the  recession.  So  is 

Gould  Inc.'s  industrial  produu 
group,  which  was  spun  into  a  shell! 
Reading  Railroad.  Both  companj 
have  seen  tough  times,  and  ot 
Gould's  old  industrial  products  groi 
has  sold  assets  to  pay  down  debt. 

Donnkenny  and  Brentano's  are 
even  worse  shape.  At  Donnkenny 
maker  of  women's  apparel,  one  per 
ing  lawsuit  alleges  that  the  font 
owner-managers    skimmed  profii 
bringing  lenders  and  venture  capit 
ists  up  short.  Brentano's,  meanwhi 
was  a  victim  of  the  recession  a 
competition  from  discounters.  Whi 
its  book  sales  took  a  beating,  the  1 
year-old  company  was  unable  to 
payments  on  the  short-term  portij 
of  its  S13  million  in  debt. 

All  this  shows  that  success) 
buyouts  take  two  things:  good  ma 
agement  and  sufficient  cash  flow 
pay  off  sometimes  crushing  de 
loads.  These  elements  are  most  ofti 
found  in  smaller  deals — where  swe 
equity  really  counts.  "The  belief  trj 
bigger  is  better  just  does  not  apply 
leveraged  buyouts,"  says  Jay  Jordan) 
veteran  dealmaker  who  has  put  1 
gethcr  25  small  and  medium-size  Id 
eraged  buyouts  over  the  last  decao 
"Economics  of  scale  here  wc 
against  you,  not  for  you." 

Why?  To  take  big  companies- 
divisions  spun  off  from  big  comj 
nies — private,  public  shareholders  jj 
premiums  of  30%  or  40%  above  C 
market  price.  "The  increased  debt ; 
creases  the  business  risk  a  little  ai 
the  financial  risk  enormously,"  sa 
lordan,  who  predicts  that  sevei 
"megabuck"  buyouts  could  soon  e; 
in  a  bust.  "This  is  a  subjective,  pfl 
ple-onented  business  not  usually  a 
propnate  for  the  S200  million  a 
$400  million  deals  now  being  strui 

To  avoid  disaster,  some  leverag 
buyout  packagers  have  bet  on  cont: 
ued  high  inflation  or  constantly  risi 
earnings.  That  gamble  may  ha 
made  good  sense  in  years  past,  but  r 
today,  with  inflation  falling  and  a 
cession  battering  profits.  "High  inf 
tion  is  great  for  these  deals,"  says  Jo 
Canning,  president  of  First  Chica 
Investment  Corp.  "But  now  we  ha 
high  interest  rates  and  stable  prices 
double  whammy." 

The  collapse  of  a  major  leverag 
buyout  would  slow  dealmaking  tc 
trickle — by  scaring  potential  lende 
Some  have  already  stopped  playh 
Prudential  Insurance,  which  pionc 
ed  institutional  buyout  financing  di 
ing  the  1960s,  has  rejected  lots  of  t 
loan  requests  it  has  seen  over  the  k 
year.  Similarly,  Massachusetts  Mul 
al  is  steering  clear  of  the  biggest  deai 


FORBES,  OCTOBER  11,  191 

till,  there's  no  shortage  of  money, 
iks  have  moved  in  to  fill  the  gap 
by  insurers.  Banks  have  also  added 
atility,  in  the  form  of  floating-rate 
ns  rather  than  the  traditional 
;d-rate  financing  of  insurers.  In  ad- 
on,  some  bank  venture-capital 
isidiaries,  eager  to  build  portfolios, 
doing  deals  on  which  more  experi- 
:ed  lenders  have  taken  a  pass. 
)ther  new  financing  for  leveraged 
routs  comes  from  brokerage  firms. 
iy?  "They  are  buying  in  on  the  sex 
ieal  of  the  deals,"  says  an  insurance 
cutive.  A  few  Wall  Street  houses, 
vever,  have  played  the  game  for  a 
g  time  and  know  how  to  play  it 
11.  First  Boston,  for  example,  put 
ether  one  of  the  first  "megabuck" 
Is:  Congoleum.  That  $465  million 
rout — with  the  initial  stock  offer  at 
Yo  above  market  price — was  conser- 
ive.  Debt  totaled  $332  million,  a 

moderate  73%  of  the  company's  cost, 
and  there  was  an  added  $50  million 
back-up  credit  line.  Most  financing 
was  at  a  fixed  rate. 

Other  Wall  Street  dealmakers  have 
not  been  so  conservative.  According 
to  critics,  some  big  deals  put  together 
by  investment  bankers  have  been 
poorly  structured,  involve  troubled 
companies  and  are  overpriced.  Most 
worrisome:  In  at  least  one  case,  the 
ratio  of  earnings  to  interest  is  less 
than  1-to-l.  A  far  safer  and  more  con- 
servative ratio  is  for  earnings  to  ex- 
ceed interest  by  2  or  2.5  times. 

The  profusion  of  leveraged-buyout 
dealmakers,  of  course,  means  that 
more  deals  will  be  attempted  in  com- 
ing months.  "The  natural  result  will 
be  higher  prices,"  says  Timothy  Hay 
of  Security  Pacific  Capital  Corp.  "But 
the  more  money  you  pay,  the  less 
viable  a  leveraged  buyout  becomes." 

If  a  big  bust  does  occur,  the  real 
losers  will  be  those  venture  capital- 
ists, usually  bank  subsidiaries  or  inde- 
pendent firms,  that  have  taken  subor- 
dinated debt.  It  offers  higher  yields 
and  equity  kickers,  but  subordinated 
creditors  line  up  after  senior  creditors 
in  bankruptcies. 

Over  four  years  ago,  Forbes  said 
this  about  leveraged  buyouts:  "Like 
all  investment  trends,  this  one  will 
eventually  be  carried  to  excess.  In 
their  greed,  investors,  lenders  and 
brokers  will  start  reaching  for  margin- 
al deals.  Other  brokers  will  find  a  way 
to  bring  the  public  in  at  an  early  stage, 
when  the  risk  is  still  high.  There  will 
be  failures  and  scandals  and  big  loan 
losses,  and  the  whole  game  will  get  a 
bad  name.  But  that  day  is  still  a  long 
way  off." 

The  question  now:  Is  that  day  closer 
than  we  realize?  ■ 

Q  •  Which  insurance  broker  will  do 
your  comoanv  a  world  of  aood? 

A.  Rol 

R.BES,  OCTOBER  11,  1982 


Bache  Command  Account  gives  you  more  for  your 
money.  An  ordinary  brokerage  account  allows  you  to  buy 
and  sell  securities.  And  that's  all. 

The  Bache  Command  Account ,M  offers  you  the  same 
opportunities  to  make  money  as  an  ordinary  brokerage 
account— and  many  more. 

All  your  money,  always  working.  Bache  Command 
Account  automatically  directs  your  uninvested  money- 
including  dividends— into  a  high-yield  money  market  fund, 
a  tax-free  fund,  or  a  U.S.  Government  securities  fund. 
Your  money  virtually  never  lies  idle. 

Exclusive  protection  beyond  SIPC.  Why  do  you  need 
$10  million  worth  of  protection?  It's  a  very  comfortable 
feeling.  The  Bache  Command  Account  provides  special 
protection  beyond  normal  SIPC  coverage,  for  a  total  cover- 
age of  up  to  $10  million— underwritten  by  a  subsidiary  of 
The  Prudential  Insurance  Company  of  America.  And  you 
won't  find  it  anyplace  else. 

Your  money's  ready  when  you  are.  You  don't  have  to 
wait  for  a  "check  in  the  mail."  Checks  and  a  Visa  card  let 

The  ordinary 
brokerage  account 

is  now  obsolete. 


A  Prudential  Company 


(09)  FOR-C-C  1 

Bache  Service  Center 
Box  5002,  Clifton,  N.J.  07015 
Call  toll-free:  800-526-7854, 
from  New  Jersey,  call  800-522-4182 
(In  Alaska  &  Hawaii,  call  the  Bache  office  nearest  you.) 

My  present  account  may  be  obsolete  Tell  me  more  about  the  Command  Account  Please 
send  me  the  free  brochure  and  prospectus  containing  more  complete  information,  includ- 
ing all  sales  charges  and  expenses  I  will  read  them  carefully  before  I  invest  or  send  money 



Bache  Command  Account 


I  Copyright  198?  Bache  •  Member  SIPC 

Capital  Markets 

7hy  are  things  going  haywire  in  a  lot  of 
jusing  revenue  bonds?  Some  theoreti- 
%l  assumptions  are  being  proved  wrong. 


By  Ben  Weberman 

lot  of  money  has  been  raised  by 
te,  county  and  local  housing  au- 
)rities — $24  billion  in  tax-free 
ids  from  1979  to  the  present — to 
ance  residential  mortgages  at  be- 
v-market  interest  rates.  Serious 
>blems  have  arisen  in  several  of 
:se  issues.  More  problems  are 
ely.  Everyone  holding  tax- 
;mpt,  single-family  housing 
irtgage  revenue  bonds  would  be 
se  to  read  the  fine  print.  Take 
:cial  note  of  the  assumptions 
ide  in  the  prospectus  about  mort- 
;e  repayments  and  prepayments 
i  about  any  arbitrage  profit  pro- 
ted  on  the  borrowing  agency's  in- 
>tment  of  cash  reserves  and  cash 
oat."  In  a  distressingly  large 
mber  of  cases,  those  assumptions 
:  not  holding  up. 

n  theory,  the  maturity  schedule 
these  tax-exempts  should  match 
|  interest  and  repayment  sched- 
:s  of  the  funds  put  out  as  mort- 
is. In  fact,  a  lot  of  bond  issuers 
:  finding  that  the  money  is  just 
t  coming  in  fast  enough  to  meet 
;ir  debt  service.  The  agencies  are 
ambling  to  cover  interest  pay- 
:nts  plus  mandatory  redemption 
the  debt  required  under  sinking 
id  and  maturity  schedules. 
Why  are  things  going  haywire? 
day,  with  the  housing  market  all 
t  dead,  the  stream  of  mortgage 

x  Weberman  is  economics  editor  of 
rbes  magazine. 

principal  prepayments  has  slowed 
to  a  trickle.  As  that  happens,  the 
amount  of  cash  received  by  the  bor- 
rowing authority  falls  short  of  the 
sum  needed  to  meet  sinking  fund 
retirements  spelled  out  in  the  origi- 
nal borrowing  agreement. 

Assumptions  about  investment 
return  are  another  problem.  Many 
of  the  issues  came  to  market  when 
short-term  interest  rates  were  in  the 
15%  to  20%  range  and  long-term 
U.S.  Treasury  issues  paid  up  to 
15%.  As  this  is  written,  short-term 
investments  are  paying  10.5%  or 
less  (three-month  Treasury  bills 
yield  only  8%)  and  bond  yields  are 
about  12%.  Most  tax-exempts  to 
subsidize  residential  mortgages 
were  sold  on  the  assumption  that 
money  raised  at  lower  tax-free  inter- 
est rates  could  easily  be  reinvested  at 
a  higher  yield — in  effect,  arbitraging 
the  capital  raised.  Rates  have  fallen 
so  far  that  new  investments  may  not 
draw  enough  interest  to  yield  any 
profit,  much  less  exceed  IRS  limits 
on  arbitrage  profits. 

No  housing  authority  has  yet  de- 
faulted outright  on  a  scheduled  re- 
demption or  missed  an  interest  pay- 
ment because  of  a  cash  squeeze.  But 
the  strain  is  showing  in  other  ways. 
Many  investors  in  high-interest 
bonds  over  the  past  two  or  three 
years  are  seeing  these  issues  re- 
deemed faster  than  was  forecast  in 
the  offering  circular.  Others  who  pur- 
chased low-interest  bonds  in  the  be- 
lief they  would  be  called  for  redemp- 
tion in  a  few  years  are  stuck  with 
these  bonds  for  many  years  to  come. 

Hardest  hit  in  many  cases  are 
those  parts  of  mortgage  revenue 
bond  issues  that  had  been  sold  as 
"supersinker"  bonds.  Such  securi- 
ties have  been  a  favorite  of  local 
authorities  in  recent  years.  The  pur- 
pose was  to  reduce  the  overall  net 
interest  cost  of  the  borrowing.  Even 


though  the  supersinker  shows  a 
stated  maturity  of  20  years  or  so,  the 
issuer  would  covenant  that  all  pre- 
payments of  mortgage  principal 
would  be  used  first  to  redeem  these 
particular  bonds.  In  most  cases,  the 
average  life  expectancy  of  super- 
sinker bonds  ranged  from  four  to  six 
years.  Other  long:term  bonds  in  the 
same  borrowing  were  expected  to 
have  lives  of  about  20  years. 

When  Shelby  County,  Tenn. 
came  to  market  for  $150  million  in 
May  1980,  the  debt  was  structured 
with  a  $14  million  portion,  listed 
for  2011  maturity,  that  was  to  be 
redeemed  first  with  all  proceeds  of 
mortgage  prepayments — a  super- 
sinker. Because  of  their  special  sta- 
tus, the  interest  coupon  on  them 
was  only  8%.  It  appealed  to  short- 
term  investors.  That  8%  return  was 
greater  than  those  on  serial  bonds 
scheduled  to  be  redeemed  in  four  to 
six  years,  which  carried  only  6.25% 
to  6.55%. 

Since  that  sale,  however,  mort- 
gage prepayments  have  fallen  sharp- 
ly. Investors  who  bought  the  super- 
sinker in  expectation  of  a  high  re- 
turn over  a  short  life  span  are, 
instead,  getting  a  low  return  for  a 
long  life  span.  At  the  same  time, 
some  investors  who  thought  they 
had  bought  long-term  bonds  have 
ended  up  with  medium-term,  losing 

A  case  in  point:  Flush  with  cash 
from  foreclosures  and  high  yields  on 
its  invested  cash,  Shelby  County 
has  purchased  at  a  discount  its  own 
high-coupon  bonds. 

State  housing  agencies  have  not 
resorted  to  the  supersinker  tech- 
nique, but  their  bondholders  have 
faced  problems,  anyway.  When  the 
Indiana  Housing  Finance  Authority 
raised  $  1 50  million  in  June  1 980,  the 
debt  pattern  assumed  that  mort- 
gages would  be  prepaid  at  60%  of  the 
FHA  experience.  "If  prepayments 
occur  at  a  rate  lower  than  60%  of 
FHA  experience,"  the  prospectus 
warned,  "revenues  could  be  insuffi- 
cient to  pay  debt  service  on  out- 
standing bonds."  Well,  prepayments 
have  been  below  that  rate.  The  au- 
thority's answer  has  been  to  borrow 
$75  million  this  year  through  an 
issue  having  full  parity  with  the  older 
one.  (The  latest  issue  assumes  0.0% 
prepayments.)  In  effect,  the  cash- 
flow problem  has  been  solved  by 
taking  on  additional  debt.  ■ 

>ES,  OCTOBER  11,  1982 


Psychology  &  Investing 

Computer  literacy  isn't  just  for  hobbyists 
and  engineers  anymore.  Spend  a  few 
minutes  learning  about  the  life-changing 
machines  via  the  world  of  restaurants. 


By  Srully  Blotnick 

ft  »* 

If  you  have  ever  been  in  an  expen- 
sive French  restaurant  or  a  budget- 
priced  Chinese  one,  you  can  under- 
stand how  a  modern  digital  com- 
puter works. 

Digital  computers  don't  speak 
English,  French  or  Chinese;  they 
speak  binary — that  is,  all  they  un- 
derstand is  zeroes  and  ones  (actual- 
ly, high  or  low  voltage).  Suppose 
the  owners  of  the  two  restaurants, 
which  are  side  by  side,  want  to 
save  money,  as  well  as  eliminate 
favoritism,  thanks  to  tipping  at  the 
door.  So  they  replace  their  maitre 
d's  by  small  computers.  Now  the 
question  is,  how  should  the  com- 
puter decide  whether  or  not  to  seat 
someone  at  a  particular  table?  The 
answer  depends  on  the  kind  of  res- 
taurant it  is. 

To  enable  the  computer  to  "see," 
suppose  sensors  are  put  in  the  floor 
that  signal  "1"  when  someone 
stands  on  them  and  "0"  otherwise. 
The  entranceway  to  each  place  is 
big  enough  to  hold  two  people  at  a 
time.  Let's  also  assume  that  all  the 
tables  in  both  restaurants  have  only 
two  chairs. 

When  there  are  two  people  in  the 
entranceway,  the  sensors  will  signal 
a  pair  of  Is.  A  1  and  a  0  mean  there 
is  only  one  person  there.  And  two  0s 

Dr.  Srully  Blotnick  is  a  research  psychologist 
arid  author  oj  Getting  Rich  Your  Own  Way 
and  Winning:  The  Psychology  of  Successful 

mean  no  one  is  waiting. 

If  no  one  is  standing  in  the  en- 
trance foyer,  then  a  pair  of  0s  as 
input  signals  should  produce  an 
output  signal  that  is  also  0.  If  a  pair 
of  people  arrive  at  either  restaurant, 
the  computer  should  signal  them  to 
go  ahead  and  be  seated  at  a  designat- 
ed table.  That  is,  a  pair  of  Is  as  input 
signals  to  the  machine  should  pro- 
duce an  output  signal  that  is  also  a 
1.  Simple  enough. 

It  is  when  one  person  arrives 
alone  that  the  situation  becomes  a 
bit  more  complicated.  What  should 
the  machine  do? 

At  the  French  restaurant,  some- 
one who  seeks  to  dine  alone  may 
not  get  in.  Why?  Because  one  per- 
son at  a  table  takes  it  out  of 
commission.  The  entire  table  is 
essentially  occupied.  So  a  0  and  a  1 
at  the  entranceway  of  the  French 
restaurant  produces  a  0  from  the 
machine — that  is,  a  "stop,  we  can't 
seat  you."  At  the  Chinese  restau- 
rant, a  0  and  1  as  inputs  produce  a 
1  from  the  machine — that  is,  "As 
long  as  there's  an  empty  seat 
somewhere  in  this  joint,  you'll  be 

The  situation  at  the  French  res- 
taurant can  be  summarized  by  the 
following  chart: 
















It's  easy  to  read — just  read  it  one 
row  at  a  time.  A  and  B  are  sensors, 
and  when  someone  stands  on  them, 
they  light  up  with  a  1.  C,  the  third 
column,  is  the  yes  or  no.  A  0  means 
no  table  is  available.  A  1  means  yes, 
you  have  a  table  (or  in  the  Chinese 
restaurant,  at  least  a  seat,  perhaps  at 
a  table  with  other  people). 
The  situation  at  the  Chinese  res- 

taurant can  be  summarized  by  th 
following  chart: 
















Note  that  the  only  difference  b< 
tween  this  chart  and  the  one  abov 
it  occurs  in  rows  2  and  3.  The  diffe 
ence  is  no  minor  matter,  thougl 
since  it  tells  you  whether  you  wi 
get  into  the  restaurant. 

A  chart  such  as  this  is  usual] 
called  a  truth  table.  However,  at  th: 
stage  you  can  learn  more  about  th 
operation  of  digital  logic  circuits  b 
thinking  of  the  chart  as  "the  trut 
about  the  table." 

The  first  table,  the  one  summ; 
rizing  the  situation  at  the  Frcnc 
restaurant,  is  called  an  AND  gat 
Why?  Because  the  computer,  whic 
is  acting  as  a  gate,  determining  wh 
gets  in  and  who  doesn't,  wants  yo 
and  someone  else  there  before 
will  admit  you.  The  second  char 
the  one  summarizing  the  situatic 
at  the  Chinese  restaurant,  rcpn 
sents  an  OR  gate,  because  if  eithi 
you  or  someone  else  (or  both) 
present,  you  can  go  on  in. 

These  gates  are  so  important  I 
the  operation  of  computers  and  a] 
pear  so  often  in  the  circuit  diagran 
of  the  insides  of  these  machine 
they  have  their  own  symbols: 

;^r>'  j^t>^c 

An  AND  gate  4.V  OR  gate 

The  difference  between  the  tw 
symbols  is  that  the  AND  gate 
shaped  like  a  beer  belly,  the  OR  ga 
is  shaped  like  a  bra.  As  microele 
tronic  devices  and  circuitry  becorr 
more  widespread,  you  will  see  syn 
bols  like  these  increasingly. 

The  computers  we  come  inl 
contact  with  in  our  everyday  livi 
make  extensive  use  of  these  gate 
Take  automated  bank  tellers,  for  e: 
ample.  How  does  the  computer  d 
cide  whether  to  give  you  the  cas 
that  you  request?  First,  you  fee 
your  bank  card  into  the  machin 
Then,  if  there  is  enough  money  i 
your  account  AND  the  number  c 
the  card  matches  your  accoui 
number,  out  come  the  nice  cm 
bills  you  wanted. 

Here,  the  card  is  being  used  as 
key.  When  you  stick  a  key  into 
lock,  every  notch  in  the  key  mu 




take  your  pick. 


1  one  of  the  tumbler  pins.  And 
you  use  a  plastic  card  as  a  key, 
thing  must  match  in  this  in- 
2,  too,  even  though  it's  plastic 
id  of  metal.  You  wouldn't 
someone  who  gets  only  part  of 
formation  right  to  gain  access 
ur  house  or  bank  account.  In 
it  is  an  AND  gate.  Think  of 
ink  machine  as  the  maitre  d'  of 
tch  restaurant. 

3ther  major  applications,  for 
ice,  a  computer  that  is  moni- 
;  an  industrial  manufacturing 
ss  for  errors,  OR  gates  are 
important.  When  the  produc- 
rocess  begins  to  go  awry,  even 
le  error  in  the  sequence  should 
jught  to  someone's  attention. 
:re  are  two  steps  in  the  se- 
:e,  A  and  B,  the  computer 
d  inform  you  if  either  one  OR 
ther  starts  to  screw  up.  Both 
shouldn't  have  to  fail  before  a 

is  sent.  This  is  analogous  to 
)st  of  a  Chinese  restaurant. 
:e  that  the  situation,  then,  is 
y  the  reverse  of  the  one  at  the 

There,  we  want  the  transac- 

0  go  through  only  if  everything 
rder.  Here,  we  want  a  warning 
to  be  issued  if  anything  is  out 

ier — and  we  want  to  know 
and  where  it  is.  (We  wouldn't 

that  to  happen  at  the  bank 
a  thief  would  then  know  what 

in  order  to  make  the  fraudu- 
ransaction  go  through.) 
:  logic  systems  in  computers 
>mbinations  of  AND  and  OR 
etched  into  tiny  silicon  chips, 
tear  a  lot  about  integrated  cir- 
— in  particular,  LSIs  and  VLSIs. 
ou  will  be  hearing  a  great  deal 

about  them  in  the  future, 
you  understand  even  a  little 

gates,  there's  no  longer  any 

1  to  be  intimidated  by  the 
pt  of  an  integrated  circuit. 
51  (large-scale  integrated)  cir- 
s  a  chip  that  contains  any- 
:  from   100  to  1,000  gates. 

(very-large-scale  integrated) 
ts    are    those   that  contain 

than  1,000  such  gates.  Each 
s  simple,  but  working  togeth- 

a  chip,  they  can  be  made  to 
e  quite  sophisticated  tasks, 
ddition  to  AND  and  OR  gates 

are  also  NAND  and  NOR 

They  are  the  ones  computer 
eers  actually  care  most  about. 

issue  we  talk  about  these — 
ime,  in  terms  of  "the  truth 

tables"  in  a  singles'  bar.  ■ 

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the  possibility  of  substantial  gains 
with  improvement  in  economic 
and  market  conditions. 

"  According  to  Upper  Analytical  Services,  Inc.,  which 
monitors  500  mutual  funds. 

**  A  portion  of  the  income  may  be  subject  to  some  state  and 
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Share  prices  of  these 
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No  use  pretending  sovereign  nation, 
never  default.  The  fact  is  tens  of  billion 
in  international  loans  are  gone  forever 


By  Ashby  Bladen 

Newspaper  reporters  have  at  last 
discovered  the  international  crisis 
that  more  perceptive  observers  have 
been  watching  develop  for  many 
years.  Ominous  analogies  are  now 
being  drawn  with  the  financial  cri- 
sis that  occurred  half  a  century  ago, 
raising  the  fear  that  many  countries 
may  be  about  to  repeat  the  national- 
istic, beggar-my-neighbor  mistakes 
that  were  largely  responsible  for 
turning  the  slump  of  the  early  1930s 
into  the  Great  Depression.  The 
Mexican  president's  xenophobic  re- 
action to  the  run  on  the  peso  shows 
that  those  fears  have  real  substance. 

In  the  current  crisis,  as  in  the 
crisis  of  the  1930s,  excessive  opti- 
mism is  a  villain.  The  new  era  of 
international  cooperation  through 
the  League  of  Nations  was  supposed 
to  stimulate  economic  growth  and 
make  most  developing  countries 
more  creditworthy  than  they  had 
appeared  to  be  in  the  19th  century. 
Now  the  world  has  repeated  that 

Excessive  optimism  has  always 
been  a  source  of  trouble  in  human 
affairs,  along  with  the  unreasoning 
fear  that  sets  in  when  it  becomes 
clear  that  the  optimistic  promises 
cannot  be  kept.  But  the  harmful  ef- 
fects of  the  optimism-fear  polarity 

Ashby  Bladen  «  senior  vice  president  for 
investments  of  the  Phoenix  Mutual  Life  In- 
surance Co.  and  author  of  How  to  Cope 
with  the  Developing  Financial  Crisis. 

can  be  greatly  mitigated  by  a  clel 
understanding  of  the  conditions 
which  people,  businesses  and  go 
ernments  are  likely  to  be  able 
repay  their  debts.  The  basic  princ 
pies  of  finance  are  the  same  both 
home  and  abroad. 

I  cannot  repeat  too  often  that  ai 
borrowing  creates  purchasing  powi| 
that  we  can  spend  in  the  present  1 
mortgaging  the  productive  effoi 
that  we  will  have  to  make  in  t 
future  in  order  to  pay  it  back.  So  t 
least  risky  reason  for  borrowing  is 
invest  in  the  tools  that  will  ma 
our  future  efforts  more  products 
Any  individual  or  country  that  be 
rows  in  order  to  enjoy  the  got 
things  of  life  today  is  skating  ■ 
thin  ice.  Young  people  may  want 
do  some  of  that  anyway,  and  cou 
tries  with  promising  economi 
may  prudently  do  the  same.  B 
cautious  lenders  prefer  to  see  lai 
borrowings  tied  to  specific  prodi 
tive  projects.  That  principle  h 
been  much  neglected  lately. 

The  political  and  economic  ] 
construction  after  World  War  II  i 
eluded  the  creation  of  the  Interr 
tional  Monetary  Fund  to  ma 
loans  to  countries  that  were  sper 
ing  more  abroad  than  they  we 
earning  there.  In  a  sense,  the  IMF 
another  result  of  the  simplemind 
Keynesianism  that  I  have  criticiz 
in  other  contexts.  That  is  the  noti 
that  the  besetting  problem  of  mc 
ern  economies  is  a  persistent  sho 
fall  of  demand,  which  then  leads 
'  the  conclusion  that  stimulating  ( 
mand  is  always  a  good  idea  rega 
less  of  what  it  gets  spent  on  a 
regardless  of  what  burdens  it  crea' 
for  the  future. 

The  IMF  does  require  that  coi 
tnes  that  are  getting  too  deeply  ir 
hock  change  their  policies.  It  wai 
them  to  encourage  saving  and 
vestment  in  productive  assets,  ra 



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By  Richard  B.  Hoey 

I  make  a  distinction  among  three 
aspects  of  a  financial  crunch.  First, 
there  is  the  rate  crunch,  reflected  in 
extremely  high  interest  rates.  Sec- 
ond, there  is  the  availability  crunch, 
or  true  credit  crunch,  as  the  avail- 
ability of  credit  to  a  wide  variety  of 
borrowers  is  restricted.  Finally, 
there  is  what  I  have  named  the  risk 
crunch,  as  a  growing  number  of 
weak  borrowers  face  defaults  and 

We  have  not  had  a  full-scale  cred- 
it availability  crunch  since  the 
spring  of  1980.  But  we  had  a  pro- 
longed rate  crunch  until  the  last  few 
weeks.  That  rate  crunch  finally  pre- 
cipitated a  widening  risk  crunch, 
which  has  persisted,  even  after  in- 
terest rates  declined.  Borrowers 
who  have  defaulted  or  where  de- 
faults have  been  widely  feared  in- 
clude Braniff,  Drysdale,  Bank  Am- 
brosiano,  Lombard-Wall,  Interna- 
tional Harvester,  Alfa  of  Mexico, 
Dome  Petroleum,  Penn  Square, 
Mexico,  Poland  and  Argentina.  In 
addition,  investors  have  become 
wary  of  buying  the  CDs  and  Euro- 
dollars of  some  banks. 

The  job  of  the  central  bank  in  a 
risk  crunch  is  not  to  act  as  a  welfare 
agency  for  stockholders  and  lenders 
whose  investments  have  gone  bad 
but  rather  to  minimize  the  degree  to 

Richard  B.  Hoey  is  first  vice  president,  econo- 
mist and  investment  strategist  at  Bache  Hal- 
sex  Stuart  Shields 

Market  Trends 

There  are  some  real  opportunities  in  me 
dium-grade  bonds.  But  if  you  decide  U 
go  in,  diversify — and  be  sure  to  watch  th 
underlying  common  stocks. 


which  the  failure  of  insolvent  en 
ties  threatens  a  wave  of  bankru] 
cies  among  borrowers  who  are  fq 
damentally  sound. 

The  trickiest  part  of  the  curre 
risk  crunch  is  the  potential  for  a 
faults  among  the  countries  of  t| 
world  to  which  the  banks  are  ma; 
lenders.  These  loans  are  not  coll, 
eralized,  so  the  banks  have  no  ass< 
to  sell  off  if  there  is  a  default.  And 
is  also  difficult  to  enforce  a  ju<| 
ment  against  such  borrowers.  Finl 
ly,  these  borrowers  represent  sue! 
large  portion  of  the  equity  of  lai 
banks  that  they  are  able  to  adq 
what  we  call  the  "Samson  col 
plex."  That  is,  "Bail  me  out,  or! 
bring  the  temple  of  the  financ 
system  down  around  your  ears." 

Hidden  deep  within  the  recesj 
of  the  world  financial  system  thi 
is  one  antidote  that  can  stabilize 
if  cooperation  among  central  bail 
ers  is  not  enough.  The  IMF  ho 
approximately  100  million  ounij 
of  gold,  carried  on  its  books  at 
SDR,  about  $38  per  ounce.  At  $4 
an  ounce,  the  unrealized  profit 
the  IMF  gold  amounts  to  about  $ 
billion.  It  would  be  larger,  exci 
that  some  of  it  was  used  as  welfi 
for  the  world's  poorer  countries. 

This  unrealized  profit  on  the  II 
gold  doesn't  clearly  belong  to  ai 
one.  But  it  backstops  the  solven 
of  the  IMF  and  could  provide  coll 
eral  for  crisis  borrowing  if  neede« 

The  recent  risk  crisis  has  be 
accompanied  by  a  surge  in  bond  a 
stock  prices.  The  same  thing 
curred  following  the  Penn  Cent 
crisis  of  1970  and  the  Hersts 
Franklin  National  crisis  of  191 
Short-term  interest  rates  fall  shai 
ly  in  the  risk  crunch,  which  fe< 
through  to  the  prices  of  other  asse 
That  explains  the  perversity  oi 
bull  market  in  the  midst  of  a  wo 
financial  crisis. 



i  bull  market  in  bonds  began  a 
ago.  Everyone  has  been  so 

of  the  risk  of  falling  bond 
>  in  the  event  of  rising  interest 
that  they  ignored  the  risk  of 
g  income  if  rates  dropped.  In- 
rs  who  stayed  short  now  face'a 
drop  in  their  income, 
e  strategy  is  to  extend  maturi- 

forecast  in  my  May  25,  1981 
=  s  column  that  the  peak  in 
:erm  yields  ultimately  reached 
81  would  stand  for  the  next 
ry.  I  still  believe  that,  and 
:erm  rates  should  drop  a  lot 
ir  for  the  next  decade.  On  a 
■term  basis,  however,  I  am  not 
thusiastic  about  buying  long- 
bonds  aggressively  for  imme- 
capital  gains  as  I  was  before 
3nd  market  surged.  But  inves- 
vho  need  income  can  extend 
rities,  recognizing  that  at  high- 
ld  prices  they  now  have  some- 
more  risk  of  capital  loss  and 
)otential  for  capital  gains,  at 
in  the  short  run. 
ly  can  also  downgrade  if  they 
reful.  Now  that  the  consensus 
t  the  world  is  so  risky  that  you 
d  buy  only  the  highest-grade 
>,  some  real  opportunities  have 
:d  up  in  medium-grade  bonds. 
i  are  going  to  be  more  defaults, 
unexpected,  so  don't  buy  just 
r  two  bonds.  The  necessity  for 
ding  the  risk  by  diversifying 
ises  as  you  move  away  from 
nment  and  triple-A  bonds, 
general,  the  amount  of  excess 
you  can  get  by  buying  tnple-B 
s  rather  than  tnple-A  bonds  is 
peak  near  the  cyclical  low  in 
rate  profits.  That's  when  the 
)f  bankruptcy  is  highest.  Cor- 
e  profits  are  now  at  their  low- 
md  risk  spreads  are  probably 
:heir  peaks. 

ou  go  with  triple-B  bonds,  one 
o  watch  is  the  performance  of 
ompany's  stock.  If  it's  notice- 
veak  relative  to  the  stock  mar- 
nd  selling  at  a  big  discount  to 
value,  it  may  mean  that  the 
>any's  financial  condition  is  de- 
ating,  but  the  rating  agencies 
i't  yet  caught  on.  Investors  in 
um-grade  bonds  and  specula- 
n  low-grade  bonds  should  con- 
selling  out  if  they  begin  to 
ve  such  weakness  in  the  price 
:  underlying  stock.  The  odds  of 
lg  out  before  default  are  much 
aved  if  you  do  this.  ■ 

Should  you  5pe©»ktgr 
invest  in  commodities? 

Should  you  trade  with  a  firm  that  thinks  in  terms  of  investments  instead  of 
speculation?  A  firm  whose  chairman  of  the  board  is  a  former  chairman  of  the 
Chicago  Mercantile  Exchange?  A  commodity  brokerage  firm  that  has  specializ- 
ed in  commodities  since  1914?  A  firm  that  has  second-and-third-generation 
descendants  of  the  founder  serving  as  top  management?  One  that  has  created  a 
college-level  course  of  advanced  studies  in  commodities  trading  for  its  mid-level 
employees?  An  Organization  which  will  this  year  custom-design  in-depth 
seminars  for  people  like  you  who  will  respond  to  this  advertisement  so  that  they 
can  bring  these  special  conferences  into  your  reach?  Can  you  believe  a  company 
which-  above  and  beyond  customary  brokerage  services-  offers  a  broad  array  of 
exclusive  products?  A  firm  that  will  gladly  share  its  performance  record  with 
you?  One  that  believes  its  business  is  built  upon  its  continuity,  stability, 
specialization,  and  tradition?  Who  believes  all  of  this  about  R.J.  O'Brien  & 
Associates,  Incorporated?  Well,  for  starters,  our  customers.  Some  have  traded 
with  us  for  the  past  two  decades.  Then  ask  our  competition  . . .  they  certainly 
believe  in  us.  Shouldn't  you? 

Dear  Mr.  O'Brien: 

I  might  be  a  believer  in  someone  who  has  been  in  commodity  trading  since  1914 
Send  me  a  set  of  your  four  informative  brochures  that  tell  me  more  about  your 
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IS,  OCTOBER  11,  1982 


Venture  Capital 


CULATION (Required  by  39  U.S.C.  3685) 

1.  Title  of  publication:  FORBES 
1A  Publication  No.  156914. 

2.  Date  of  Filing:  Sept.  24,  1982. 

3.  Frequency  of  issue:  Biweekly. 

3A.  No.  of  Issues  Published  Annually:  26. 
3B.  Annual  Subscription  Price:  $33.00. 

4.  Location  of  Known  Office  of  Publication:  60  Fifth 
Avenue,  New  York.  N.Y.  10011. 

5.  Location  of  the  headquarters  or  general  business  offices 
of  the  publishers:  60  Fifth  Avenue,  New  York,  N.Y.  1001 1. 

6.  Names  and  complete  addresses  of  Publisher.  Editor, 
and  Managing  Editor.  Publisher:  James  J.  Dunn.  60  Fifth 
Avenue,  New  York,  N.Y.  10011.  Editor:  James  W  Michaels, 
60  Fifth  Avenue,  New  York,  N.Y.  10011.  Managing  Editor: 
Sheldon  Zalaznick,  60  Fifth  Avenue,  New  York,  N.Y.  1001 1 

7.  Owner:  Malcolm  S.  Forbes.  60  Fifth  Avenue.  New  York, 
N.Y  1001 1.  Malcolm  S.  Forbes,  Jr.  60  Fifth  Avenue.  New 
York,  N.Y.  10011.  Christopher  Forbes.  60  Fifth  Avenue, 
New  York,  N.Y.  1001 1. 

8.  Known  bondholders,  mortgagees,  and  other  security 
holders  owning  or  holding  1  percent  or  more  of  total  amount 
of  bonds,  mortgages  or  other  securities:  None. 

9.  Not  Applicable 

10.  Extent  and  Nature  of  Circulation: 








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2.  Mail  Subscriptions 

C.  Total  Paid  Circulation 

(Sum  of  10B1  and  10B2) 

D.  Free  Distribution  by  Mail. 

Carrier  or  Other  Means, 
Samples,  Compli- 
mentary, and  Other 
Free  Copies 

E.  Total  Distribution 

(Sum  of  C  and  D) 

F.  Copies  Not  Distributed 

1.  Office  Use.  Left  Over. 
Unaccounted,  Spoiled 
After  Printing 

2.  Returns  From  News 

G.  Total  (Sum  of  E,  Fl  and  2) 
11.1  certify  that  the  statements  made  by  me  above  are 

correct  and  complete. 

Executive  Vice  President 



760.943  793,078 





Drawing  up  a  plan  is  one  of  the  more 
boring  things  about  starting  a  business, 
but  its  one  of  the  most  important. 


By  Thomas  P.  Murphy 

This  article,  the  seventh  in  a  series, 
is  about  the  Business  Plan,  that 
dull-as-dishwater,  absolutely  essen- 
tial document  you  should  assemble 
before  launching  a  new  business. 
Starting  without  a  business  plan  is 
like  starting  a  cross-continent  road 
trip  without  a  map.  You  will  get 
somewhere,  but  it  might  not  be 
where  you  intended  to  go. 

To  put  this  in  context,  the  preced- 
ing articles  have  taken  you  through 
the  scanning  process — how  to  think 
about  yourself  as  an  entrepreneur; 
how  to  consider  new  business  ideas; 
how  to  buy  a  company;  and  how  to 
approach  franchising.  All  this  is 
"dining-room-table"  planning.  Its 
end  product  is  the  Business  Plan. 
It  becomes  a  "Private-Placement 
Memorandum"  if  you  intend  to  ex- 
pose your  plan  to  very  many  people 
in  an  effort  to  raise  capital.  If  that  is 
the  purpose,  you  should  have  it  re- 
viewed by  a  lawyer.  He  will  keep 
you  this  side  of  the  SEC's  limita- 
tions on  private  offerings  and  make 
his  presence  known  by  pointing  out 
risk  factors:  "There  can  be  no  assur- 
ance this  turkey  will  ever  get  off  the 
ground  with  his  scheme  to.  .  .  ." 

What  goes  into  a  business  plan? 
Everything  that  is  important  to  the 
business,  and,  hopefully,  in  fewer 
than  40  pages. 

A  plan  should  begin  with  a  simple 

Thomas  P.  Murphy  heads  a  venture  capital 
firm.  Partnership  Dankist,  Stamford.  Conn 

declaratory  sentence:  "XYZ  Corj 
will  manufacture  very  large  seal 
integrated  devices  .  .  .  ";  "PDQ  pn 
poses  to  enter  America's  fast-grow 
ing  convenience-food  retailing  lr 
dustry  by.  .  .  ."  That  may  seem  or 
vious,  but  I  have  labored  throug 
business  plans  that  didn't  reveal  th 
nature  of  the  business  for  15  pages- 
when  I  got  that  far. 

The  next  section,  for  my  tast 
anyway,  ought  to  state  the  advar 
tages  your  approach  has  in  its  indu! 
try.  If  there  is  a  history,  whic 
would  be  true  if  you  were  buying  a 
existing  business,  it  should  be  abot 
the  fourth  section  of  the  Plan. 

Logically,  the  next  step  is  to  d< 
tail  your  plan  for  handling  the  ke 
element  in  the  business.  If  succes 
depends  on  your  ability  to  manufai 
ture  a  product,  then  this  sectio 
ought  to  show  how  you  propose  t 
do  it.  On  the  other  hand,  if  it  is 
marketing-dependent  business,  th; 
would  go  before  manufacturing. 

The  marketing  section,  by  th 
way,  is  key.  In  my  experience,  moi 
new  enterprises  manage  to  mak 
the  product  they  said  they  were  g( 
ing  to  make.  But  marketing  is  a  kil 
er.  It  is  expensive,  exasperatingl 
unpredictable  and,  when  you  get  t 
the  cash  flow,  very  sensitive  to  tin 
ing.  An  example  of  the  latter: 
friend  was  selling  a  remarkable  ne' 
product  to  city  governments.  H 
failed,  in  projecting  sales,  to  alio 
for  the  long  budgeting  cycles  citif 
have  and  the  fact  that  they  are  slo 
•to  pay  their  bills.  Those  oversigh 
almost  killed  the  business. 

Since  marketing  is  so  importan 
let  me  suggest  some  of  its  subse 
trons:  personnel,  the  physical  facil 
ty  and  how  these  relate  to  the  sah 
projections.  You  should  show  boi 
the  size  of  the  total  market  ar 
trends  in  it,  talk  about  competitic 
and  suggest  what  share  of  the  ma 




u  hope  to  get.  There  is  more:  a 
iting  plan  includes  pricing, 
sales  tactics  (company  sales- 
agents,  distributors,  manufac- 
'  reps,  etc.).  Warranties  and 
e  have  to  be  covered  and,  if 
tant,  advertising  and  public 

ie  business  involves  a  product, 
l  detailed  section  is  needed  on 
t  will  be  developed,  manufac- 

etc.  Cost  and  volume  num- 
re  needed.  If  key  equipment  or 
naterials  are  involved,  you 
to  make  clear  how  you  intend 
them  and  when, 
mr  business  plan  is  for  outside 
mption,  a  section  will  be 
d  on  the  management  team — 
hey  are  and  how  their  experi- 
elates  to  the  business.  Inves- 
vill  also  want  to  know  how 
■ship  of  the  business  is  divided 
iow  management  intends  to 
^nsate  itself.  Modesty  in  com- 
tion  is  my  recommendation; 
se  to  pay  key  executives  small 
;s  supplemented  with  a  piece 

action.  Investors  love  sweat 


3t  business  plans  do  not  have  a 
chart — a  series  of  boxes  on 
showing  what  needs  to  be 
ind  when.  I  urge  you  to  do  one. 
:  final  sections  of  a  business 
ire  the  financials,  and  by  far 
ost  important  of  these  is  cash 
If  the  cash  is  negative,  that 
negative  is  the  amount  of  fi- 
ng  you  need.  The  first  year 
d  be  done  by  months  and  the 
wo  years  by  quarters, 
ile  it  is  heresy,  I  would  skip 
balance  sheets  and  income 
nents  on  a  small  startup  that 
't  require  outside  financing. 
;  early  stage,  they  don't  tell 
nuch.  Only  cash  is  critical; 
you  are  out  of  that,  you  are 
f  business. 

:re  is  an  excellent  book  you 
:  find  helpful  that  has  a  good 
m  on  writing  business  plans.  It 
Front  Financing  by  A.  David 
•  (Ronald  Press,  $15.95). 
:s  all  this  sound  wearisome 
m?  If  it  does,  maybe  you 
d  forget  about  starting  your 
business.  If  you  find  these 
s  boring,  you  probably  would 
running  a  business  boring. 
:ss  may  start  with  a  brilliant 
:pt,  but  its  implementation  is 
usand  niggling  details.  ■ 



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iS,  OCTOBER  11,  1982 


Gold  normally  trades  at  a  discount  to 
platinum.  Now  the  tables  are  turned.  Can 
traders  make  a  buck  based  on  this? 



By  Stanley  W.  Angrist 

The  recent  explosion  in  the  prices  of 
gold  and  silver  has  brought  out  the 
gold  bugs  among  my  readers.  They 
all  want  to  know  the  same  thing:  Is 
this  the  time  to  go  back  into  the 
precious  metals?  Longtime  readers 
of  this  column  know  that  I  am  no 
fan  of  gold  and  silver.  As  a  rule,  they 
are  commodities  that  go  up  in  price 
when  the  end  of  the  world  is  at 
hand.  As  a  commodity  trader  who 
has  been  at  it  for  more  years  than  I 
care  to  think  about,  I  always  try  to 
look  at  things  from  an  optimistic 
point  of  view.  Traders  who  don't 
maintain  such  a  viewpoint  soon 
find  themselves  looking  for  bridges 
with  low  railings. 

I  believe  that  this  runup  in  the 
precious  metals  is  simply  a  bear 
market  rally  that  will  soon  play  it- 
self out.  While  the  international 
banking  system  is  certainly  not  in 
great  shape,  I  do  not  think  it  is  going 
to  fail.  And  though  this  rally  has  a 
great  deal  to  do  with  the  sad  state  of 
many  international  banks  and  their 
Third  World  clients,  this  condition 
is  not  going  to  be  enough  to  sustain 
the  rally  much  further. 

Donald  M.  Selkin,  a  spread  analyst 
with  Bachc  Halsey  Stuart  Shields, 
recently  took  a  look  at  a  spread  that 
has  moved  into  a  unique  area.  The 
trade  involves  gold  against  plati- 

Stanley  W.  Angrist  is  a  commodity  specula- 
tor, consultant  and  longtime  observer  of  the 
commodity  markets. 

num — two  precious  metals  with  dif- 
ferent demand  characteristics.  For 
the  past  two  years  or  so  platinum  has 
been  trading  at  a  discount  to  gold. 
Some  traders  view  this  as  an  aberra- 
tion since  platinum  traditionally 
trades  at  a  premium  to  gold.  A  brief 
look  at  three  recent  time  periods 
provides  some  insight  into  the  forces 
that  move  these  two  metals. 

Following  the  explosion  in  oil 
prices  in  1973,  the  U.S.  experienced 
a  severe  recession  in  1974  and  1975. 
Particularly  hard  hit  was  the  U.S. 
auto  industry.  During  this  time, 
platinum  went  to  a  discount  to  gold 
for  about  a  ten-month  period,  even- 
tually sinking  to  a  level  $40  an 
ounce  under  gold.  Since  platinum 
has  more  industrial  uses  than  gold, 
particularly  as  a  catalyst  in  emis- 
sion control  devices  for  autos,  it  is 
not  too  surprising  that  it  weakened 
more  than  gold  in  an  economic 

The  precious  metals'  bull  market 
that  started  in  the  fall  of  1979  and 
went  to  the  spring  of  1980  saw  plati- 
num continually  at  a  premium  to 
gold.  This  was  due  to  strong  eco- 
nomic activity  in  general  and  a 
healthy  auto  market  in  particular. 
Platinum  inventories  ran  down  be- 
cause of  high  industrial  demand. 
Speculative  demand  was  also  high 
thanks  to  double-digit  U.S.  inflation 
and  a  weak  dollar.  The  gold  market 
peaked  on  Jan.  17,  1980  at  $875  per 
ounce,  while  platinum  continued  to 
surge  to  new  highs,  not  reaching  its 
alltime  record  price  of  $1,150  per 
ounce  until  late  in  March.  At  that 
time  it  held  an  astounding  $400- 
per-ounce  premium  over  gold. 

The  bear  market  of  1981-82  was 
characterized  by  record  real  interest 
rates,  a  falling  inflation  rate,  lower 
oil  prices,  a  strong  dollar  and  a 
worldwide  recession.  These  factors 
caused  a  flow  of  funds  out  of  pre- 

cious metals  to  interest-bearing  i 
struments.  Platinum  dropped  und 
gold  in  late  1980  and  has  remain 
at  a  discount  ever  since.  In  eaa 
summer  the  $20  discount  doubl 
and  in  late  August  exceeded  $1 
per  ounce  for  the  first  time  in  hisi 
ry  (see  chart). 

This  spread  is  worth  trading 
this  level.  Only  a  modest  strcngl 
ening  in  industrial  demand  wotj 
have  a  tendency  to  narrow 
spread.  Therefore,  I  would  consicj 
buying  platinum,  while  selling  gc 
if  platinum  is  at  least  at  a  $11 
discount  to  gold  (basis  the  Ap 
contracts).  I  would  buy  two  cc 
tracts  of  platinum  for  every  contra 
of  gold  I  sold,  as  the  former  is  on 

The  gold  premium 

The  chart  below  shows  the  p rem 
um  of  the  April  gold  contract  to  tl 
April  platinum  contract.  T! 
spread  has  never  been  so  wide 

Dollars  per  ounce 



Gold-platinum  spread  {dollars  per  ounce) 


I  Mar.  I  Apr.  I  May  I  |une  I  July  I  Aug 

50  ounces,  while  the  latter  is 
ounces.  Thus,  a  $1  change  in 
spread  value  will  result  in  a  S 
gain  or  loss  per  spread. 

You  should  be  aware  that 
spread  is  a  volatile  one,  and,  th 
fore,  I  would  risk  no  more  t 
$1,000  from  my  entry  point.  I  wc 
look  for  a  profit  of  at  least  $4,00( 
each  spread.  The  margin  on 
spread  is  the  sum  of  both  side 
about  $5,500  (exchange  m 
mums),  while  the  round-turn  c 
mission  is  also  the  sum  of  li 
sides,  about  $200.  ■ 






N  New  York  Stock  Exchange       A  American  Stock  Exchange        O  Over-the-Counter       P  Pacific  Stock  Exchange 


\,  B.C.,  Canada— September  13,  1982 

ver/gold  prices  recently  advancing  to  and 
ligher  levels  than  was  the  case  a  few  months 
;nt  to  the  sale  in  mid-August  1982,  Arizona/ 
we  scheduled  further  sales  for  the  mid  and 
September  1982  of  silver/gold  produced  from 
iills  Mining  Properties  located  in  Mohave 
a,  U.S.A. 

silver/gold  prices  either  advance  or  hold  at 
Arizona/Continental  intend  to  increase  the 
>n  of  their  mining  operations  (presently  about 
day)  and  to  continue  sales  of  product  on  a 

ource  of  increased  daily  production  is  to  be 
cessing  more  underground  ore  from  the  G  A  R. 

and  the  Hulda  Mine  (Continental). 


)n  program  which  has  proved  to  be  successful 
tors  in  the  area  was  recently  commenced  on  a 
r  of  the  Companies'  gas  wells.  If  the  test 
le  select  wells  are  positive  the  program  will  be 
ill  other  wells  already  connected  to  pipeline 
h  would  create  improved  production  this  fall 


sly  reported  Slope  Energy,  Inc.  (Slope)  the 
■  providing  very  encouraging  drilling  results 
lelays  with  completion/production.  Slope  re- 
ced  that  progress  is  continuing  towards  re- 
mpletion/production  problems  with  respect  to 
3dy  drilled  with  Slope  as  Operator, 
the  Companies'  Representatives  in  the 
Office  are  involved  in  negotiations  with 
articipation  in  new  prospects  whereby  the 
Trough  Arizona  Resources  Texas  Inc.  will 


10.000.000  Shares     Authorized  5.000,000  Shares 

3.167  934  Shares     Issued  2,545.086  Shares 



Vancouver  Stock  Enchange/CVR 

iharles  S  Underhi  1 1 .  Director,  Arizona  Silver 
Continental  Silver  Corp.,  Suite  1140,  625 
couver,  B.C.  Canada  V6C  2T6  Phone:  (604) 
Michael  A.  Connor,  Balfour  Securities,  630 
ite  2170,  New  York,  N  Y.  10111  (212)  489- 


\,  BC,  September  8,  1982 — The  current  surge 
if  gold  has  resulted  in  a  decision  by  Cumo 
.  to  triple  immediately,  its  production  at  the 
.ouanna  Gold  Mines  Ltd.  producer  near  Nakina 

urces  a  Vancouver  based  natural  resources 
1  the  Consolidated  Louanna  Gold  Mine  will  be 
hree  shift  operation,  seven  days  per  week  It 
-per-day  mill  on  the  property  which  has  been 
:e  April  1982 
at  the  mine  have  been  running  at  the 
ibility  study  rate  of  .3  ounces  of  gold  per  ton 

Increased  production  capability  should  allow  the  oper- 
ation to  produce  in  excess  of  4,000  tons  per  month  and  also 
allow  the  operators  to  sell  in  excess  of  1,200  ounces  of  gold 
per  month. 

Experience  has  demonstrated  that  the  Cumo  controlled 
mine  can  produce  approximately  40  percent  of  its  gold  in  a 
bar  form,  thus  yielding  a  far  greater  return  than  from  the 

The  original  feasibility  study  at  the  mine  was  based 
upon  100  percent  concentrate  production.  But.  with  the 
addition  of  gravity  concentrating  equipment  and  melting 
furnace,  the  new  production  method  has  been  effective 
in  returning  40  percent  in  gold  bar  form.  This  has 
resulted  in  considerable  cost  savings  in  handling 
freight  and  smelting  costs.  Sixty  percent  is  still  shipped 
in  concentrate  form  to  the  Asarco  smelter  in  Helena, 

Cumo  Resources  reports  that  approximately  12  percent  of 
its  gold  income  is  saved  by  producing  bar  gold. 

Cumo  Resources  received  100  percent  of  the  Consoli- 
dated Louanna  Gold  Mine's  revenue  until  it  is  fully  paid 
back  for  its  total  investment  of  approximately  $4.6 
million  to  put  the  property  into  production.  At  current 
gold  prices  the  capital  should  be  returned  over  the  next 
twelve  months.  After  that,  Cumo  reverts  to  a  position 
involving  25  percent  free  carried  interest  in  the  property 
and  assets. 

Cumo  Resources  trades  on  the  Vancouver  Stock  Exchange 
in  Canada  and  is  listed  on  the  NASDAQ  system  in  the  U.S.  as 
well  as  having  been  approved  for  trading  in  California  .  The 
company  has  producing  oil  and  gas  properties  in  Utah  and 
New  Mexico.  It  recently  acquired  Lougheed  Resources  Ltd.  of 
Vancouver,  and  through  it,  assumed  management  control  of 
NP  Energy  Corporation  of  Houston,  Texas.  A  firm  with  gas 
and  oil  production. 

Consolidated  Louanna  Gold  Mines  trades  on  the  Toronto 
Stock  Excfi3ng6 

(Contact:  Cumo  Resources  Ltd.,  (Suite  1106),  700  West 
Pender  St.  Vancouver,  B.C.  Canada  V6C  1G8.  Phone:  (604) 


FREDERICK,  MD„  August,  16,  1982— Input  Business 
Machines  (OTC-IPUT)  today  reported  revenues  for  its  first  six 
months  ended  June  30,  1982  of  $2,153,721  versus  revenues 
of  $1,732,547  for  the  first  half  of  1981,  a  24  percent 
increase.  Net  loss  was  $185,177,  or  $.09  per  share,  versus 
net  income  of  $128,908,  or  $.09  per  share,  in  the  same 
period  of  1981. 

Revenues  for  the  second  quarter  jumped  to  $1,125,648, 
29  percent  above  the  $876,901  reported  in  last  year's 
second  period.  Net  income  for  the  second  quarter  was 
$51,065,  or  $.03  per  share  versus  net  income  of  $34,751,  or 
$.02  per  share,  for  the  second  quarter  of  1981. 

In  announcing  the  results,  Gary  J.  Murphy,  president  and 
chief  executive  officer,  said  "Input  sales  continue  to  in- 
crease. Higher  expenses  in  research  and  development  have 
produced  new  products  that  should  in  the  months  ahead 
contribute  to  new  growth  and  profit." 

Input  Business  Machines  Inc.,  is  one  of  the  nation's 
foremost  suppliers  of  optical  character  recognition  sys- 
tems, which  translate  printed  date  into  computer  lan- 
guage. Input's  products  are  integrated  into  data  pro- 
cessing systems  used  by  financial  institutions,  insur- 
ance companies,  credit  card  processors  and  other 
related  businesses. 

For  more  information  or  a  copy  of  the  second  quarter 
interim  report,  contact:  Gary  J.  Murphy,  President  &  Chief 
Executive  Officer,  Input  Business  Machines  Inc.,  257  E.  6th 
St.,  Frederick,  MD  21701  Phone.  (301)  694-0600. 


Exploration  agreement  with  Noranda 

VANCOUVER,  BC,  CANADA,  September  13,  1982— Three 
Vancouver-based  companies  with  interests  in  451  claims  in 
the  Hemlo  Gold  Camp  of  Northwestern  Ontario  today  an- 
nounced agreement  in  principle  has  been  reached  with 
Noranda  Mines  Limited  of  Toronto  covering  exploration  of 
the  property. 

Subject  to  formal  execution,  the  agreement  requires 
Noranda  to  spend  a  minimum  of  $500,000  to  earn  a  60% 
interest  in  two  blocks  of  234  and  217  contiguous  claims. 
The  three  Vancouver  companies  can  participate  in  further 
exploration  as  to  40%  of  the  cost  or  elect  to  have  Noranda 
meet  all  costs  and  revert  to  a  20%  carried  interest  in  the 

An  immediate  start  is  planned  on  an  intensive  surface 
exploration  program  covering  234  'north'  block  claims 
shared  50%  each  by  Pryme  Energy  Resources  Ltd.  (V-PYE) 
and  March  Resources  Ltd.  (V-MHL)  and  a  217  claim  'south' 
block  owned  75%  by  Pryme  Energy  Resources  Ltd.  and  25% 
by  International  Damascus  Resources  Ltd.  (V-IDR). 

Pryme  President  Anthony  L.  Agostino  said  the  company  is 
highly  encouraged  with  the  potential  participation  by  a 
major  mining  company  that  has  been  active  in  the  area  for 
more  than  25  years. 

He  noted  that  Noranda's  Geco  Mining  Division  has  a 
5,000  ton  per  day  mill  just  35  miles  away  from  the  Hemlo 

The  prospective  agreement,  contact  for  which  originated 
from  Noranda,  provides  that  company  with  its  first  major 
participation  in  the  Hemlo  Camp. 

Several  significant  deposits  of  gold  bearing  mineraliza- 
tion have  now  been  discovered  in  the  area  and  more  than  20 
companies  are  involved  in  exploration  programs. 

The  two  claims  groups  covered  under  the  Noranda 
agreement  extend  along  the  geological  contact  zone  to  the 
north-northeast  and  the  south-southwest  of  the  original 

For  further  information,  contact  March  Resources  Ltd.  for 
Anthony  L.  Agostino  at  (Suite  202)  595  Howe  St.,  Vancouver, 
B.C.,  Canada  V6C  2T5  (604)  687-8867. 

Corporate  Report  Updates  appears 
once  a  month  in  1982.  For  added 
editorial  impact  and  relevance,  it  is 
positioned  in  Forbes'  popular  section, 
"Money  and  Investments." 

For  further  information  on  Corporate 
Report  Updates  call  or  write: 

Sarah  Madison 

Corporate  Report  Updates 

Forbes  Inc. 
60  Fifth  Avenue 
New  York,  NY  10011 
Phone:  (212)  620-2371 


Classified/  October 

11, 1982 



We'll  Help  Put  Your  Brand 

on  a  Ranch  or  Farm  Anywhere  in  the  West 

NEUBAUER  HORSE  RANCH:  275  Acre  Horse  Ranch  near  Denver,  Colorado, 

good  improvements. 
FRASER  FARM:  399  Acre  farm  in  the  path  of  development,  north  of  Denver. 
STELBAR  RANCHES:  15,500  acre  ranch  south  of  Walden,  Colo. ,  runs  1800  cows 

lots  of  water. 

HORN  RANCH:  1118  acre  ranch  on  North  Platte  River  near  Walden,  Colorado. 
STAR  RANCH:  23,480  acre  Nebraska  Sandhills  Ranch,  will  run  2000  cows, 
one  of  the  best. 

FUNK  FARM:  320  acre  farm  near  Platteville,  Colo. ,  good  horse  or  cattle  operation 
YAMPA  VALLEY:  3440  ac  of  beautiful  tree  covered  mountain  land  near  Vail,  Co. 
ELBERT  CO.  RANCH:  4700  ac  of  open  &  tree  covered  grassland,  S.E.  of  Denver 
LEDDEN  RANCH:  1920  acres  combination  ranch  &  farm  in  Nebraska, 
good  improvements. 

For  Information  on  these  and  other  Farms  &  Ranches  of  all  sizes  write  or  call: 


420  E.  58th  Avenue,  Suite  155,  Denver,  Colorado  80216    (303)  825-1765 

CAPE  COD,  Massachusetts 

Exquisite  3  +  bedroom  home  on  3  .2 
ac.  with  400'  frontage  on  Pleasant  Bay. 
Privacy,  beautiful  views,  dock,  hand- 
somely decorated,  flawless  condition. 
Brochure  available.  Exclusive. 


john  cotton,  jr.  real  estate 
15  West  Bay  Rd. ,  OstervUle,  MA  02655 

ISLANDS — Uninhabited  private  islands  on 
or  near  intracoastal  waterway — Georgia  & 
S.  Carolina  coast  $175,000— $600,000. 
TIMBERLANDS— GA.  Ideal  water, 
temp.  &  soil  conditions  provide  great  timber 
tracts.  Excellent  tax  shelter.  $925  per  ac. 
sizes  and  prices  Farm  630  ac — $585,000. 
335  ac.  —$315,000. 

2712  Clairmont  Rd.  N.E. 
Atlanta,  GA  30329 



One  of  the  largest  &  most  beautiful 
in  Florida  Keys.  GOLF  COURSE, 
restaurants,  fresh  &  salt-water  pools 
w/bar.  Shops,  159-unit  motel,  26 
acres.  $10,555,555. 
NEW  .  .  .  FREE  .  .  .  FALL  CAT- 
ALOG! Top  real  estate  values  coast 
to  coast!  Please  specify  type  prop- 
erty and  location  desired. 


612-YW.  47th  St., 
K.C.,  MO.  64112. 
Ph.  Toll-Free:  1-800-821-2599. 

To  Buy  Property  in  England 

Contact:  Melinda  Stebbins 

England's  Specialist  in  Property  Search 
City  and  Country 

31  Sloane  Court  West, 
London,  SW3  4TE 
Tel:  01-730-0119 



Discover  winning  strategies  and  learn 
the  basics  of  how  to  trade  in  the  lucra- 
tive commodity  futures  markets.  Send 
now  for  free  information  about  LIMIT 
UP — a  "course"  set  up  in  game  form. 
Write:  LIMIT  UP,  Dept.  F,  P.O.B. 
1200  NY  NY  10028 




Registered  Law  School 
Qualify  for  California  Bar  Exam. 

Phone  Toll  Free  800-423-4530 
Ca.  residents  phone  800-362-7052 
Dept.  2 IB       35  N.  Craig  Ave. 
Pasadena,  CA  91107 



Big  Hole  River — A  unique  home  right 
on  the  water  with  over  4  miles  of  Fish- 
ing rights.  This  is  a  "one  of  a  kind"  sit- 
uation— private,  beautiful,  accessible. 
Blackfoot  River — Over  3  miles  of 
frontage  on  this  spectacular  river — 35 
miles  to  Missoula — over  1,000  acres — 
totally  private — no  improvements. 
Shields  River — Indescribably  beauti- 
ful mountain  ranch  (4,000  acres)  at 
very  head  of  Shields  Valley  as  river 
leaves  National  Forest. 
Contact  exclusive  agents  for  sellers: 


P.O.  Box  1924 
Billings.  MT  59103 
(406)  252-2155 
1-800-443-2781  Ext.  P40FR 






•  TO  TIE-UP  RE  OR 








First  Guaranty  Ltd. 

567  San  Nicolas.  Newport  Beach  CA  92660 

(714)  640-1633 


slip  Cases 
or  binders 

In  red  and  gold 

Slipcase:  $5.95; 
three  for  $17 

Binders:  $7.50; 
three  for  $21.75 

Send  check  with  your  name  and 
address  to: 
Dept.  FB,  P.O  Box  5120 
Philadelphia,  PA  19141 


*  Total  paid  circula- 
tion: 700,000 

*  186,000  serve  on 
their  companies' 
board  of  directors 

*  336,000  are  in  top 
management  positions 

*  236,000  serve  on 
boards  of  one  or 
more  companies 

*  Average  household 
income:  $93,000 

*  685,000  own 
securities.  Average 
value:  $473,000 

*  Average  net  worth: 



•15%  DISCOI 

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Orders:  1-800-231-3680 
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Katy  (Houston),  Texas  774S 
Questions  &  Inq  ?  1-713-392-0 
E  1980,  Marymac  Industries. 
Ed  or  Joe  McManus 



Free  wholesale  catalc 
Satisfaction  guarantee 
Member  Jewelers  Board  oi 
Chamber  of  Commert 
No.  1  MAIN  ST. 


Direct  from  the  Mine: 
u.s.  office: 
235  6th  Street 
Pine  City,  Minn.  550 
612-629-2537  1 
Industria  De  Joias  Padua 
Belo  Horizonte,  Bra 



in  the  first  issue  of  eac 
Advertising  closing  dat 
month  preceding  date  of 


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publisher  and  are  sold! 
units  of  one  inch  (14  ag 
for  regular  listings,  and  t 
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60  Fifth  Avenue/New  York, 
(212)  620-24* 






d  to  any  other  media, 
wrate  image  on  ties  speaks 
eloquently  at  a  surprisingly 
cost.  Silks  or  polyester, 
phone  for  brochure  and 
75  minimum. 


,  FL 


Montreal,  Canada 
H2S  3H1 
(514)  271-1112 


0  BUY  &  INVEST 

p  Finders  Fees  Paid 
iders  Inquiry  Invited 
ite  Box  A239  Forbes 
60  Fifth  Avenue 
ew  York.  NY  10011 



ble  time.  Avoid  costly  mis- 
ii  how  to  evaluate  micro-com- 
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l '-step  procedures  for  analyz- 
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ulications  on  personal  com- 
:  usiness  Before  you  look  at  a 
l  end  $4  for  our  latest  report. 
;  rlin  Research  Corp. 
0  Walnut,  Suite  101 
uis  Obispo,  CA  93401 

Classified/  October 

11,  1982 





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quickly  and  accurately. 

What's  happening,  why  and 
what  it  means  for  your  future. 



For  subscription  information: 

P.O.  Box  1464 
La  Jolla,  CA  92038 

Tel:  (714)  454-4504 



Start  a  profitable  home  business  in 
America's  fastest  growing  industry 
—  growing  50%  faster  than  general  retail 
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time  Write  for  free  book  about  mail  order 
opportunities,  case  histories,  plus  com- 
plete details  No  obligation. 

Mail  Order  Associates 
Dept  530.  Montvale,  NJ  07645 


Learn  how  to  become  a  successful 
consultant  in  your  own  field. 
Write  for  a  free  prospectus: 

The  Consultant's  Library, 
815  15th  Street,  N.W.,  Dept  F, 
Washington  D.C.  20005. 



Surplus  &  closeout  in  factory  sealed 
cases.  Large  quantities  only.  We  pay 
cash.  Quote  wholesale  prices. 

Richard  V.  Payne  &  Associates. 
505  N.  Lakeshore  Dr.,  Chicago,  IL  60611 
(312)  828-0969 


Cruise  beautiful  French  canals 
on  hotelboat1  Superb  French 
cuisine  Relax  on  sundeck  or  cy- 
cle alongside  while  floating 
through  Burgundy  Visit  pictur- 
esque villages  and  chateaus  In- 
dividuals or  charter  group  (max- 
imum-12)  Pans  pickup  HORI- 
ZON 215  N.  75th,  Belleville.  IL 
62223  800-851-3448 



Ztampicsi  Stall,  £td. 

Hampton  Hall  Ltd.,  the  leading  manufacturer  of  corporate  neckware,  will 
design  a  handsome  He  and  scarf  for  your  company,  or  school.  Add  to  this  a  leather 
bound  wallet  and  a  belt  of  the  same  motif  and  you  have  the  Hampton  Hall 
executive  collection.  Custom  designed  tote  bags  and  hats  are  also  available.  For 
additional  information  and  brochure,  please  call  or  write:  (min  order  150  units) 
HAMPTON  HALL  LTD.,  51  East  42nd  St.,  N.Y.,  N.Y.  10017  (212)  687-6810  Depi.  KB-10 



Established  businesses  located 
west  of  the  Mississippi  for  sale  by 
owners.  Many  owner  financed.  All 
price  ranges  available. 
Call  collect. 

Construction  &  Contracting 
Printing  Shops 
Eating  &  Drinking 
Automotive  Related  Businesses 


Box  6339.  Dept  F,  Co  Spgs  CO  80934 
(303)  630-8188,  Ext  14 
No  fee  to  buyer  involved 

COMMODORE  calculators  and 
computers— Apple  48K  +  $1069— 
DD  w/controller  $499— Disc  2  $449 
•Commodore  Vic  20  $197— Super 
64K  computer  $595— "Atari  400- 
16K  $199-  -Tl  99/4A  $199— *TI  59 
$104-PC  100C 149-  'Mattel  Intel- 
livision  $1 79— Atari  800-48K  $779 
800-16K  $699-HP  41CV 
$238-HP41C  $189.  HP 
computers— call  for  thousands  of 
items  for  sale  at  great  prices. 
"Special  promotions  — may  in- 
clude mfg.  rebate  plans— call  or 
write  for  info. 

OSC,  PO  Box  74545,  LA  Cal 
90004-800-421-8045  or  213-739- 
1130  in  California  800-252-2153 



Utilize  over  24,000  sources  of  capital. 
Clients  will  come  to  your  office  for 
Business  &  Venture  Capital  assistance. 

•  Average  request  $1.2  Million 

•  Average  finders  fee  5% 

$18,000  CASH  REQUIRED 
Creative  Capital  Corp. 
Mr.  Metz:  (213)  856-0100 


including  paintings  by  Stobart.  Gardner, 
Cross,  September  12-October  24. 
Illustrated  catalog.  $7.00: 
Dept.  M, 
Mystic  Seaport  Museum  Stores 
Mystic,  CT  06355 




Big  earnings  in  profitable  spare/full 
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fraction  U.S.  cost.  Up  to  500% 
profit.  No  product  investment. 
Famous  world  trader  starts  you. 
Write:  Mellinger,  Dept.  R159A 
Woodland  Hills,  CA  91367 




>es:  CapitalistToor 

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Box  340,  Dept  9235,  Hanover,  PA  17331 


Forbes /Index 

Index  of  companies  covered  in  news  stories  and  by  the  columnists  in  this  issue. 

AAI  ■  139 

Affiliated  Hospital  Prods   140 

Alcoa  190 

American  Broadcasting   40 

American  Express   40 

American  Heritage  Life   233 

American  Motors   156 

American  Natural  Resources   166 

AT&T   218 

American  Tobacco   44 

Apple  Computer  214 

Arco   226 

Atari  214 

Bamberger's   44 

Bank  Ambrosiano  258 

Bank  of  New  York   16,  190,  202 

Barclays  (U.K.)   124 

Bata  Shoe   78 

Billings  235 

Boardroom  Consultants   220 

Boeing   40 

Bowen-McLaughlin-York   139 

Braniff  lntl   258 

Brentano's   250 

BATInds|U.K.|   43 

Bunker  Ramo  Information  Systems  212 

Burger  King   172 

CARBO   177 

CBS   28 

Cablevision  40 

Campbell-Mithun   25 

Campbell  Soup   114 

Champion  lntl   10 

Chart  House   46 

Chi-Chi's   172 

Chrysler   33 

Citicorp  16,  124,  202 

Classic   177 

Congoleum   251 

Continental  Illinois   16 

Control  Data   192 

Crocker  Natl  Bank   12 

Damson  Oil   236 

Data  General   1 18 

Denny's  45 

Detroit  Stoker   140 

Digital  Equipment   122 

Dome  Petroleum   258 

Donnkenny  250 

Dow  Jones  &  Co   214 

Drexel  Burnham  Lambert  98 

Dyco  148 

Eastdil   96 

E-Systems   139,  144 

Evans  Prods   106 

Exxon    12,  196,  218,  226 

Firestone  Tire  &  Rubber  227 

First  Boston   251 

Fleetwood  Enterprises  130 

Fonar   235 

General  Dynamics   .-  40,  140,  156 

GE   33,  108,  124,  200,  206,  238 

GM  228 

Genesco   78 

Robert  L.  Gette  222 

Getty  Oil   40,  226 

Gimbel  Bros  40,  44 

Gould   250 

W.R.  Grace   102 

W  W.  Grainger  51 

Grumman   40 

Grupo  Industrial  Alfa  iMexicol    152,  258 

Gulf  Oil   226 

Gulf  &.  Western  40 

Haley  Assocs   222 

Hambrccht  &  Quist   206 

Hardee's   46 

Harsco  139 

Hearst   40 

Hcidrick  &  Struggles   222 

H.J.  Heinz   112 

Hewlett-Packard   12,  123 

Hill  Samuel  (U.K.)  124 

Houston  Natural  Gas  25 

Imperial  Group  (U.K.)   44 

Inco   190 

Interco  78 

IBM    122,  144,  196,  218,  228,  238 

International  Harvester   258 

International  Paper   10,  190 

Investment  Search   147 

Jerrico  46 

Juki  Office  Machine  228 

Kellogg   114 

Kohler   25 

Korn/Ferry   222 

Lawson  Prods   51 

Lionel  98 

Lockheed   40,  129 

Loews  43 

Logicon   144 

Lombard- Wall  258 

Loral   139,  144 

MCA   40 

McDonald's   45,  172 

McDonnell  Douglas  40.  61,129 

McDonough  78 

McRae  Inds  73 

R.H.  Macy  45 

Manning  is.  Napier  16 

Manufacturers  Hanover  202 

Manville   98 

Marbel  Assocs  Ltd  10 

Marriott   45 

Marshall  Field   43 

Medical  21   25 

Metropolitan  Life   124 

Mine  Safety  Appliances   207 

Monarch  Life  Insurance   214 

Monsanto  196 

Mutual  Benefit   218 

National  Mine  Service  207 

National  Westminster  |U.K.|  124 

New  Hampshire  Ball  Bearings   60 

Nordeman  Grimm   222 

Norris  Inds  250 

Northrop   144 

Northwest  Bancorporation   16 

Norton  Simon   114 

Ocenco  207 

Octameron  Press   222 

Olivetti   206 

Outlet   98 

Pan  Am  124,  227 

Pantry  Pride  96 

Paraho   235 

Paramount  Pictures   40 

Parker  Hannifin  39 

Payless  Cashways   102 

Paystaff   73 

PepsiCo  172 

Perillo  Tours  227 

Philip  Morris   

Phillips  Petroleum   

Pillsbury   4 



Pizza  Hut   

Pizza  Time  Theatre  

Polygon  DTN   

Polygon  Network   



Pratt  is.  Whitney  


Provident  Life  I 

Prudential  Insurance  12 

Ouotron  Systems   

Ralston  Purina  4 


Paul  Revere   

R.J.  Reynolds   

Rockwell  lntl  

Rolls-Royce  (U.K.)   < 

Ronald  Press    " 

San  Diego  Gas  is.  Electric   


Scandia  Down   

Charles  Schwab  &  Co  

Shell  Oil  


Siemens  A  G  |W  Germany)   

Societe  des  Bains  de  Mer  et  du  Cercle 

des  Etrangers  IMonaco)   

Sony  Corp  of  America   

Stone-East  Assocs   

Storage  Technology  

Stratus  Computer  

Spencer  Stuart  &  Assocs   

Synapse   ._ 

Sysco   *  m' 


Taco  Bell   


Teachers  Insurance   


Telemet  America   

Telerate  Systems    , 


Time  Inc   .-.  

Tishman  Realty  is.  Construction   

Tokyo  Juki  ilapan)  , 

Tosco   J 

Tucson  Electric  Power  , 

20th  Century-Fox  ..J 

Union  Mutual  

United  Industrial  

Universal  Studios   .| 

Utah  lntl   '  ] 

Vallen  J 

Wang  Laboratories   j 

Warner  Comm  

Wellco  Enterprises   J 

Wendy's   „J 

Westinghouse  Electric   33, 

Westvaco   J 

Weyerhaeuser   J 

Wheelabrator-Frye  J 

Wickes  Cos   J 

Wilshire  Oil   -u, 

Winnebago   ' 

Woods  Petroleum   


Do  you  know  anybody 
who  is  somebody  in  business 
who  does  not  read 
Forbes  Magazine? 

Capitalist  Tool 




he  more  things  change  " 

is  from  past  issues  of  Forbes 

y  years  ago  in  Forbes 

be  issue  of  October  14,  1922) 

ank  book  is  my  favorite  reading, 
ss.  I  do  my  work  for  the  love  of  it 
;e  my  heart  is  in  it.  But  a  bank 
an  be  thrilling — the  best  literary 
r  in  the  world.  Next  to  the  Bible, 
nk  book  is  the  world's  greatest 
rhe  edition  is  too  limited.  Every 
lould  have  his  copy.  .  .  .  On  ev- 
ge  there  should  be  something 
than  on  the  page  before.  And 
3ank  book  should  have  a  happy 
;:  'Continued  in  our  next.'  The 
ook  should  be  the  foundation  of 
mily  library.  People  open  the 

book  too  often  and  the  bank 
not  often  enough.  The  check 
i  too  full  of  reading  matter!" 

— Entertainer  Sir  Harry  Lauder 

Dodrich QlLVERTOWN  | 
KJ  Cord  Tire 

Goodrich  tire  ad 

nonstration  of  the  power  of  the 
I'  union  in  Williamson  County, 
i  d  the  sympathy  with  men  ac- 
\  )f  murder  in  the  Herrin  massacre 
i  a  responsible  community,  was 
at  the  Court  House  at  Marion, 
i  en  35  defendants  were  arraigned 
:ir  bonds  guaranteed  by  the  offer 
:ties  worth  in  the  aggregate  $10 
n.  Eighty-six  men,  including 
f  Herrin's  business  community, 
'd  forward  to  offer  bail." 
now  forgotten  "Herrin  massa- 
i  "Bloody  Williamson  County" 
le  21-22,  1922  was  an  incredible 
During  a  United  Mine  Workers' 
one  mine  in  this  long-organized 

southern  Illinois  area  (known  locally 
as  "Little  Egypt")  decided  to  remain 
open  by  hiring  guards  and  strike- 
breakers and  becoming  an  armed 
camp.  When  a  striker  some  distance 
from  the  mine  was  killed  by  a  bullet,  a 
thousand  or  so  armed  strikers,  farmers 
and  other  sympathizers — all  bred  to  a 
local  tradition  of  violence — gathered 
and  poured  fire  into  the  mine  until  it 
surrendered.  Then  several  dozen  de- 
fenders were  killed  in  cold  blood,  often 
brutally,  including  the  mine  superin- 
tendent and  the  operators  of  the 
mine's  machine  guns.  The  National 
Guard  did  not  intervene  partly  be- 
cause the  local  officials  sympathized 
with  the  strikers  and  did  not  request  it, 
and  partly  because  the  governor  was 
on  trial  for  a  $  1 .5  million  theft.  No  one 
was  ever  convicted  for  the  killings. 

Fifty  years  ago 

(October  15.  1932) 

"Now  that  he  is  out,  everybody  is 
taking  a  crack  at  Samuel  Insull.  It  is 
natural,  it  is  inevitable  that  the  thou- 
sands who  invested  in  Insull  securities 
which  have  lost  value  should  feel  bit- 
ter. Unquestionably  he  resorted,  when 
pressure  became  severe,  to  financial 
expediencies,  especially  in  mter-com- 
pany  deals,  which  he  would  not  have 
countenanced  under  normal  condi- 
tions. Later  facts  may  prove  me  wrong, 
but  I  cannot  believe  Sam  Insull  was  a 
crook.  Admittedly  he  was  boorish, 
high-handed,  autocratic,  sometimes 
ruthless,  often  insulting.  Admittedly 
certain  of  his  political  activities 
seemed  questionable.  .  .  .  The  indis- 
putable fact  remains,  notwithstanding 
whatever  may  be  disclosed,  that  Sam 
Insull  was  essentially  an  upbuilder." 

"Things  have  not  been  going  well 

with  Ford  Motor  Co.  Time  was  when 
Ford  supplied  one  of  every  two  cars 
sold  in  the  U.S.  That  day  has  passed. 
Whereas  Ford's  sales  in  1929  exceeded 
1,310,000,  registrations  for  the  first 
seven  months  of  this  year  were  only 
154,260.  Ford  has  been  outsold  by 
Chevrolet  in  four  of  the  last  six  years. 
In  three  of  the  six  Ford  has  lost  mon- 
ey. The  return  on  his  invested  capital 
for  the  last  half-dozen  years,  notwith- 
standing that  this  period  included  the 
greatest  boom  in  American  history, 
has  been  abnormally  small." 

"Passenger  cars  made  to  sell  for  $400 
and  less  will  be  among  the  offerings  of 
1933.  This  seems  well  assured.  There 
will  be  at  least  two  lines  offered  at  this 

low  price  and  several  more  will  hover 
around  the  $450  mark.  None  of  the 
products  to  feature  will  be  small  in  the 
orthodox  sense,  for  their  wheelbases 
as  now  projected  will  correspond 
closely  to  that  of  the  Model  A  Ford." 

Twenty-five  years  ago 

(October  15,  1957) 

"American  Exchange  traders  looked  at 
their  tape  one  day  last  month  and 
blinked:  A  wide  gap  had  suddenly 
opened  up  on  the  usually  sleepy  stock 
labelled  GAP.  The  Great  Atlantic  & 
Pacific  Tea  Co.,  in  which  only  1,400 
shares  had  been  traded  during  all  of 
August,  had  spurted  from  1 75  to  1 90  on 

A&P  Chairman  George  L.  Hartford 

volume  of  1,650  shares  in  a  single  day. 

"What  had  A&P  plungers  all  shook 
up  was  not  news  of  any  great  boon  to 
the  giant  (4, 100  stores)  grocery  chain's 
already  booming  business  (a  net  profit 
last  year  of  $42  million  on  sales  of 
$4.5  billion),  but  speculation  over 
what  would  happen  to  the  family 
block  of  1 . 1  million  voting  shares  now 
that  Chairman  George  Ludlum  Hart- 
ford had  gone  to  his  reward." 

But  A&P,  then  the  U.S.  grocery  co- 
lossus, never  overcame  its  inbreeding. 
Last  year  it  lost  money  on  sales  of 
only  $7  billion,  though  consumer 
prices  had  more  than  trebled  since 
1957.  Now  it  ekes  out  a  so-so  exis- 
tence under  the  control  of  Germany's 
Tengelmann  retail  group. 

"A  Wall  Street  bank  specialist  at  mid- 
month  took  one  look  at  the  nine- 
month  earnings  reports  of  Manhat- 
tan's major  commercial  banks  and 
said:  'They  never  had  it  so  good.  Not 
even  in  1929  when  call  money 
brought  12%.  Today  it's  a  safer  and 
cleaner  business.  They  don't  have  to 
play  around  with  risky  loans.  .  .  .'  " 

OCTOBER  11,  1982 


The  ideal  man  bears  the 
accidents  of  life  with 
dignity  and  grace,  making 
the  best  of  circumstances. 

A  determined  soul  will  do 
more  with  a  rusty  monkey 
wrench  than  a  loafer  will 
accomplish  with  all  the 
tools  in  a  machine  shop. 
Rupert  Hughes 

There  are  no  circumstances, 
however  unfortunate,  that 
clever  people  do  not  extract 
some  advantage  from. 
La  Rochefoucauld 

Men  of  mettle  turn 
disappointments  into 
helps,  as  the  oyster 
turns  into  pearls  the 
sand  which  annoys  it. 
Orison  Swett  Marden 

Results  are  gained  by 
exploiting  opportunities, 
not  by  solving  problems. 
Peter  Drucker 

Failure  is  instructive.  The 
person  who  really  thinks  learns 
quite  as  much  from  his  failures 
as  from  his  successes. 
John  Dewey 

The  human  condition  is  such 
that  pain  and  effort  are  not 
just  symptoms  which  can  be 
removed  without  changing  life 
itself;  they  are  rather  the 
modes  in  which  life  itself, 
together  with  the  necessity 
to  which  it  is  bound,  makes 
itself  felt.  For  mortals, 
the  "easy  life  of  the  gods" 
would  be  a  lifeless  life. 
Hannah  Arendt 

It  is  well  to  treasure 
the  memories  of  past 
misfortunes;  they  constitute 
our  bank  of  fortitude. 
Eric  Hoffer 


on  the  Business  of  Life 

Difficulties,  like  work,  are 
blessings  in  disguise  Life 
would  become  monotonous, 
colorless,  deadening  without 
them.  Difficulties  should 
act  as  a  tonic,  spur  us  to 
greater  exertion,  strengthen 
our  will  power  Study  this 
subject  through  to  the 
bottom  and  you  will  arrive 
at  this  conclusion:  Thank 
God  foi  ■  difficulties' 
B.C.  Forbes 

You  may  not  realize  it  when  it 
happens,  but  a  kick  in  the 
teeth  may  be  the  best  thing 
in  the  world  for  you. 
Walt  Disney 

Problems  are  opportunities 
and  there  are  a  lot  of 
them  around. 
Arnold  Glasow 

Opportunity  wears  many 
disguises,  including  trouble. 
Frank  Tyger 

There  is  always  an  easy 
solution  to  every  human 
problem — neat,  plausible, 
and  wrong. 
H.L.  Mencken 

Things  refuse  to  be 
mismanaged  long. 
Ralph  Waldo  Emerson 

More  than  3,000  "Thoughts,"  indexed  by 
author  and  subject,  are  available  in  a  574- 
page  book  at  $12.95.  Send  check  and  order 
to:  Forbes  Inc.,  60  Fifth  Ave.,  New  York,  N.Y. 
10011.  Add  appropriate  sales  tax  on  New 
York  State  orders. 

Within  us  all  there  are  wells 
of  thought  and  dynamos  of 
energy  which  are  not  suspected 
until  emergencies  arise. 
Thomas  I.  Watson 

Mistake,  error,  is  the 
discipline  through  which 
we  advance. 

William  Ellery  Channing 

Victories  that  are  easy  are 
cheap.  Those  only  are  worth 
having  which  come  as  the 
result  of  hard  fighting. 
Henry  Ward  Beecher 

A  wise  man  will  make 
tools  of  what  comes  to  hand. 
Thomas  Fuller 

Misfortunes  are  like  knives, 
that  either  serve  us  or  cut  us, 
as  we  grasp  them,  by  the  blade 
or  by  the  handle. 
James  Russell  Lowell 

A  Text . . . 

Rejoicing  in  hope; 
patient  in  tribulation; 
continuing  instant 
in  prayer. 
Romans  12:12 

Sent  in  by  Kenneth  I.  Boone,  Bristol,  C 
What's  your  favorite  text-  The  Forbes  Si 
book  of  Thoughts  on  the  Business  of  Lj 
presented  to  senders  of  texts  used. 

What  is  defeat?  Nothing  but 
education;  nothing  but  the 
first  step  to  something  better. 
Wendell  Phillips 

Blessed  is  the  person  who 
sees  the  need,  recognizes 
the  responsibility,  and 
actively  becomes  the  answer. 
William  Arthur  Ward 




Hyatt  Regency  is  convenient 
to  Detroit  Airport, 
Ford  World  Headquarters. 


he  very  heart  of  exciting  Houston 
;alk  to  business  through  climate 
controlled  tunnel  system, 


ay  aHtyatt  across 
i  Phoenix  Civic  Plaza 
Convention  Center. 

Fresh  foods. .  .a  special 
Touch  of  Hyatt.  Hyatt  chefs  carefully 
select  only  the  freshest  seasonal 
vegetables  and  fruits  when  prepar- 
ing their  world-renowned  cuisine. 

There  are  many  things  that 
reflect  the  Hyatt  touch.  You  get  a 
special  feeling  from  each  one.  They 
are  examples  of  style  that  other  hotels 
cannot  match.  Hyatt  standards 
ensure  that  you  truly  get  your  money's 

Weekend  rates  are  another 
touch  of  Hyatt.  For  reservations  at 
109  Hyatt  Hotels  worldwide,  call 
your  travel  planner.  Or  phone 
800  228  9000. 


Hyatt  Regency  soars 
above  the  Embarcadero  Center 
business  complex. 




TtH*!W»  1  COMPANY,  MIAMI.  Flo  Sol. 


Xerox  5400 

OCT -13  J962 

IBM  Series  III 
Model  10 


Xerox  and  IBM  give  you  copies 
as  good  as  the  Minolta  EP 300. 

They  just  cost  more. 

When  we  say  Xerox*  and  IBM*  give  you  copies  as  good 
5  the  Minolta  EP  300  we're  being  modest 

Because  74%  of  consumers  interviewed  by  Nationwide 
onsumer  Testing  Institute  said  the  copies  produced  by 
le  EP  300  were  clearly  superior 

So,  while  the  Xerox  and  IBM  certainly  do  bigger 
)bs,  they  don't  do  better  jobs  than  the  Minolta  EP  300 
hen  it  comes  to  copy  quality. 

The  EP  300  has  Minolta's  exclusive  micro-toning  system, 
o  its  copies  are  extraordinarily  crisp  and  clear.  With  blacker 
lacks  From  top  to  bottom  and 
dge  to  edge.  On  virtually  any  paper 

p  to  io  x  i4  Minolta  EP300 

There's  also  an  electronic  IO1* 
oubleshooter  to  spot  and  prevent  ^~t*'~  |"~ 

roblems.  And  a  universal  tray  so  you 
an  change  paper  sizes  without  changing  trays  It's  all  in  a 
opier  hardly  larger  than  an  office  typewriter 

If  you'd  like  the  test  results,  send  us  the  coupon 

If  you'd  like  the  name  of  your  nearest 
uthorized  Minolta  dealer,  look  under 
ur  trademark  in  the  Yellow  Pages  Or 
all  toll-free  800-526-5256  In  N  I  . 

The  Minolta  EP  300.  The  small  copier 

lat  proves  size  isn't  everything.  IV  /I  I IV  TA 

he  Minolta  EP  300.  MINvJLI A 

t  up  to  10  times  the  price, 
e'd  still  look  good. 

1982  Minolta  Corporation  Product  appearance  and/or  specifications  subject  to  change  without  notice 
eroxB  and  IBM*  are  registered  trademarks  ot  Xerox  Corporation  and  International 
ismess  Machines  Corporation,  respectively  Prices  are  those  in  effect  as  of  7/1/82 


□  Please  send  me  the  copy  test  results 

□  I'd  like  more  information.  Please  have  my 
local  dealer  contact  me 








Mail  to  Minolta  Corporation.  Business  Equipment  Division. 
101  Williams  Drive.  Ramsey  Nl  07446 


Interim  Report:  Six  Months  to  30  June  1982 

Group  Results 

Half  years  to 

%  change 






£  mi 


June  1981 




+  13 


Trading;  profit 



+  22 


Interest  paid  less  received 



+  11 




+  23 


Share  of  associated  com- 

panies'profit  before  tax 



+  6 


Profit  before  taxation 



+  21 





+  8 


Profit  after  taxation 



+  32 


Minority  interest 



+  37 


Net  profit  attributable  to 

B.A.T  Industries 



+  32 



The  Directors  declared,  for  payment  on  16  November  1982, 
an  interim  dividend  out  of  the  profit  for  the  twelve  months 
to  31  December  1982  at  the  rate  of  12. 5p  per  share  on  the 
Ordinary  Shares. 

Transfers  received  in  order  by  the  Registrar  of  the  Company 
up  to  18  October  1982  will  be  in  time  to  be  passed  for  payment 
of  the  interim  dividend. 

As  explained  in  the  interim  report  issued  in  September 
1981,  the  dividend  pattern  has  been  simplified  to  one  of  a  single 
interim  and  a  final  dividend  with  the  declarations  linked  to 
announcements  of  Group  results.  The  following  is  a  summary  of 
the  interim  dividends  declared  for  the  half  years  to  30  June  1982 
and  1981. 

1982  1981 

Interim  paid  1.7.81  6.5p 
Interim  paid  4.1.82  8. Op 

Interim  payable  16.11.82        12. 5p 

12.5p       14. 5p 

The  final  dividend  will  continue  to  be  paid  at  the  beginning 
of  July. 

Exchange  Rate  Effects 

The  results  of  overseas  subsidiaries  have  been  translated  into  sterling 
for  the  purpose  of  this  report  at  rates  of  exchange  ruling  on  6  September 
1982  ( the  latest  convenient  date ),  when  sterling  was  at  US  $1,721  and 
Dm4. 275.  Comparative  figures  have  been  translated  at  rates  ruling  on 
31  December  1981,  and  had  the  same  exchange  rates  ruled  on  6  September 
1982  as  at  31  December  1981,  it  is  estimated  that  the  figures  would  have 
been  translated  to  the  following:  Turnover,  £4558  million;  Trading  profit, 
£304  million;  Net  profit  attributable  to  B.A.T  Industries, £159  million. 

Industrial  Analysis 

Half  years  to  %  change 

30.6.82    30.6.81  over  31.12.81 

Turnover                      £  millions  June  1981 

Tobacco                       2696       2416  +12  2906 

Retailing                     1117         958  +17  1222 

Paper                             475          416  +14  415 

Packaging  &  printing     255         233  +  9  259 

Other  trading  activities  225         203  +11  237 


Trading  profit 




Packaging  &  printing 
Other  trading  activities 







+  13 

+  30 
+  50 


+  22 




Sir  Peter  Macadam,  Chairman, 

"Our  businesses  in  general  have  per- 
formed well  in  difficult  circumstances, 
although  improvement  was  not  at  the 
same  excellent  rate  as  in  1981." 

'The  results  for  the  first  half  of  this 
year  reflect  our  ability  to  continue  to 
grow  despite  worldwide  recession,  with 
turnover  up  by  13  per  cent  in  sterling 
terms,  pretax  profit  up  21  per  cent  and 
attributable  profit  by  32  per  cent,  when 
compared  with  the  same  period  last  year." 

'There  was  some  decline  in  total 
Group  cigarette  volume,  but  improve- 
ments in  margins  in  some  major  markets 
contributed  to  a  satisfactory  increase  in 
tobacco  profits." 

'The  US  retail  industry  entered  a 
phase  of  harsh  competition  with  much 
higher  promotional  activity ...  the  hard 
going  has  temporarily  arrested  BATUS 
Retail's  high  rate  of  profit  growth . . . 
Retailing  in  the  UK  has  continued  to  be 
difficult  but  International  Stores  made  a 
modest  profit  in  the  first  half  of  the  year.' 

"Appleton  Papers  in  the  USA  per- 
formed well . . .  Wiggins  Teape  improved 
its  results  in  the  UK.  There  were  good 
results  from  the  carbonless  copying 
paper  business  in  Europe." 

'This  is  not  any  easy  time  to  predict 
the  outcome  for  the  year  with  any 
precision.  The  second  half  of  the  year 
will  not  show  the  growth  in  profit 
reported  in  the  first  half  but,  subject  to 
any  adverse  changes  in  exchange  rates, 
I  expect  the  year  as  a  whole  to  demon- 
strate a  real  advance  on  last  year." 

B  A  T  Industries  p. I.e.  •  Windsor  House 

50  Victoria  Street  •  London  SW1H  ON  L 

JANUARY 1,1983. 

THE  1981  TAX  LAWS. 

The  tax  laws  of  1981  affected 
vestment  tax  credits,  depreciation 
id  residuals.  But  you  can  still  take 
[vantage  of  the  1981  law's  benefits 
f  signing  a  Ryder  lease  now  and 
ltting  new  Ryder  trucks 
service  before 
n.  1, 1983. 


And  if  you  act  now  you  get  trucks 
at  1982  prices. 


The  efficiency  of  Ryder- leased 
trucks  reduces  the  cost  of  truck 
operations,  frees  up  capital  and 
management  time.  The  cost  of  the 
lease  is  a  tax  deduction  and 
since  its  an  operating 
lease,  it  improves 
your  financial 


Get  together  with  a  Ryder 
transportation  expert.  He'll  work 
with  you  and  determine  if  truck 
leasing  makes  sense  for  you.  If  it 
does,  Ryder  tax  experts  will  work 
with  your  financial  people  and 
come  up  with  the  most  attractive 
tax  structure. 



A  Ryder  truck  lease  can  give 
you  a  more  efficient  transportation 
system  and  tax  advantages.  Call 
the  nearest  Ryder  District  Office 
or  mail  the  coupon  now. 








RO  BOX  520816 




October  25, 1982 
Volume  130, 
Number  9 

161  Cover  Story. 
Behind  the  flash  and 
glitter,  signs  of  age. 

39  Xerox  "/here  will  be 
no  more  shoes  to  drop 

67  Taxing  Matters  A  neat 
trick'  if  you  can  do  it 

•  39  Companies: 


After  a  decade  in  the  wilderness,  is  the  Second 
Coming  at  hand? 

40  Companies: 

A  few  good  words  for  the  bankers. 

•  41  Drugs: 

Disaster  On  The  Fast  Track? 

It  shouldn't  be  this  way,  but  the  problems  of 
Eli  Lilly's  onetime  wonder  drug  Oraflcx  prob- 
ably will  derail  the  FDA's  new  speeded-up 
drug  testing  program. 

'42  Marketing: 

The  Hottest  Thing  On  Four  Wheels 

Sometimes  simple  things  are  the  best. 

43  The  U.N.: 

Rhetoric  Meets  Reality 

Especially  when  it  comes  to  pensions. 

44  Egypt: 

The  Fulcrum 

With  all  its  horrors,  Lebanon  is  a  sideshow. 
Now,  as  for  centuries,  Egypt  decides  peace  or 
war  in  the  Middle  East. 

50  Companies: 

DeKalb  AgResearch  Inc. 

Tortoise  and  hare.  DeKalb's  the  hare. 

•  54  Companies: 

Precision  Castparts  Corp. 

Just  wait,  just  wait. 

60  Investments: 
After  The  Fall 

The  last  John  Muir  investors  are  finally  get- 
ting paid.  They  seem  to  be  the  lucky  ones. 

67  Taxing  Matters: 

Have  It  Your  Way,  McDonald's 

Not  bad:  higher  earnings,  lower  taxes. 

75  The  Flower  Business: 
"This  Is  A  Sleeping  Giant" 

Over  $3  billion  at  retail,  just  blooming. 

80  Investment  Banking: 
The  Curacao  Connection 

So  far  this  year,  U.S.  corporations  have  bor- 
rowed $  1 1  billion  in — that's  right — the  Neth- 
erlands Antilles. 

83  Labor: 

A  Victory — Sort  Of 

How  the  UAW  "cracked"  the  Solid  South. 

86  Britain: 

Small  Is  Beautiful 

For  the  first  time  in  decades,  there  is  support 
for  small,  growing  companies  in  the  U.K. 

107  Profiles: 
K.K.  Amini 

He  landed  in  the  U.S.  with  $2,900  in  his 
pocket.  Now  San  Antonio's  Amini  family  is 
worth  $120  million. 

,111  Entrepreneurs: 
What's  A  Nimslo? 

A  3-D  camera — and  a  venture  capital  coup. 

114  Companies: 
CDI  Corp. 

Engineering's  Kelly  boys. 

116  Companies: 

Fieldcrest  Mills,  Inc. 

A  new  chairman  hits  the  ground  running. 

123  Companies: 
Banc  One  Corp. 

Pioneering  in  electronic  banking  in  reces- 
sion-ravaged Ohio. 

/ 125  Investments: 

No  Joy  In  Mudville 

The  big  bull  market  brought  naught  but  sor- 
row to  many  at  the  CBOE. 

126  Companies: 
General  Signal 

Recession-proof  no  more.  Is  a  move  to  high- 
tech the  answer? 

130  The  Up  &  Comers: 
Data  Switch 

Service  first,  technology  second,  says  Richard 
Greene.  So  far,  it's  paid  off.  Also:  Entrepre- 
neurs Rob  Thompson  Jr.  and  Terry  Dorman; 
Ma  Bell  reconsiders;  Aeronca  Inc. 

145  Companies: 
Humana,  Inc. 

Batting  .857  at  a  perennially  hot  number. 

146  Banking: 
Jockeying  For  Position 

Many  small-town  bankers  not  only  see  the 
handwriting  on  the  wall,  they're  not  trying  to 
erase  it  anymore. 

153  The  Numbers  Game: 

The  Mess  In  Bank  Accounting 

How  can  the  thrifts  be  saved  if  nobody  can 
agree  on  the  accounting? 


FORBES,  OCTOBER  25,  1982 

75  Marketing  transforms 
an  old  business 

86  Britain  A  hopeful  trend 
for  entrepreneurs 

130  t  he  I  p  &  Coma  s 
Mi  l>es  are  beautiful,  but 
sometimes  they  don't  last 

172  Poultry:  Look  out,  Mr 

156  The  Money  Men: 
Ray  Dalio 

His  outlook:  gloomy,  if  not  downright  scary. 

161  Cover  Story: 

The  Cosmetics  Industry 

The  paint-and-powder  people  are  trying  ever 
harder  and  spending  ever  bigger,  but  the  signs 
of  aging  are  unmistakable. 

166  Photofinishing: 

Not  A  Pretty  Picture 

Overexposure  in  a  $2.5  billion  business. 

170  Companies: 
Genuine  Parts 

The  man  who  doesn't  like  surprises. 

172  The  Poultry  Industry: 
Here  Come  The  Chickens 

The  nation's  poultry  processors  have  quietly 
become  sophisticated  marketers. 

189  Technology: 
The  Space  Mirror 

?4emo  to  NASA  and  the  European  Space 
Agency:  Don't  forget  the  advantages  of  the 
old  in  the  rush  to  the  new. 

Faces  Behind  The  Figures 

194  Marvin  Runyon, 

Nissan  Motor  Manufacturing  Co.  U.S.A. 
194  Thomas  DiCecco, 

Oxford  Corp. 

196  Howard  and  Melvin  Miller, 

Arrowhead  Jewelry 

196  Russell  Meyer  Jr., 
Cessna  Aircraft 

197  Stanley  Stankiwicz, 

Twelve  Stone  Flagons  Ltd. 

198  Personal  Affairs: 

New  York's  New  Hotels 

Coming  to  the  Big  Apple?  Here  are  some 
recent  additions  to  the  Manhattan  skyline,  all 
prepared  to  cradle  you  in  the  lap  of  luxury. 

210  Statistical  Spotlight: 
For  Gamblers  Only 

Recalcitrant  bonds,  preferreds  in  arrears. 

214  The  Streetwalker: 

Consumers  Are  Buying 

But  not  what  you  might  think.  Also:  What's 
going  on  with  the  oils;  What  does  Larry  Tisch 
know  that  Carl  Lindner  doesn't: 

Money  And 


What's  Ahead 
For  Business 

The  Forbes  Index 

The  Forbes/ 
Wilshire  5000 



Ben  Weberman 

Heinz  H.  Biel 

Stanley  W.  Angrist 

Thomas  P.  Murphy 

Srully  Blotnick 

Ashby  Bladen 

David  Dreman 



Side  Lines 



Readers  Say 

Fact  and  Comment 

Other  Comments 

Editorial  Index 




6,  114,  194  right,  Bill  Kelly;  10,  Wide  World,  16,  107, 
John  Grossman,  39,  Michael  Abramson,  40,  Bermc  Cleff; 

42,  156,  214,  Jim  Pozank;  44,  Lcdru/Sygma; 

45,  Sahm  Dohcsty/Liaison;  48,  David  Kenncrly/Liaison; 

50,  Richard  Faverty,  59,  lames  Mason/Black  Star; 

60,  130,  Armen  Kachaturian,  75,  Thomas  Lea;  76,  Fred  DeVan; 

80,  lurgcn  Schmitt/  Image  Bank,  83,  Spider  Martin/Black  Star; 

95,  Robin  Laurence;  112,  Terry  Parke/Liaison; 

116,  Steve  Liss/Liaison;  123,  loc  Travcr/Liaison; 

126,  137,  |oyce  Ravid;  146,  lim  Caccavo;  145,  Bill  Strode/ 

Black  Star,  161,  198,  199  202,  203,  |oc  McNally/Camera  5, 

163  bottom,  Sha'Ron  Calm,  166,  Ben  Wcavcr/Liaison; 

170,  Bill  Grimes/Black  Star,  172,  177,  179,  Steve  Murray; 

194  left,  Dana  Thomas,  197  top.  Hank  Young/Black  Star; 

197  bottom,  Lynn  |ohnson/Black  Star 


43,  67,  70,  190,  192,  Chas  B  Slackman 
Diagram:  189,  Boh  Conrad 


Cover  Photograph:  |oc  McNally/Camera  5 

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protected  through  a  trademark  registration  in  the  U  S  Patent  Office 

FORBES,  OCTOBER  25,  1982 



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Iames  W.  Michaels 

Managing  Editor 

Sheldon  Zalaznick 

Assistant  Managing  Editors 

lames  Flanigan,  Geoffrey  Smith,  Paul  Sturm 
Executive  Editors:  lames  Cook,  leffcrson  Gngsby 
Economics  Editor:  Ben  Webtrman 
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Senior  Editors:  Ruth  M.  Grucnberg,  Howard  Rudnitsky, 

lohii  A  Conway,  William  G.  Flanagan,  Thomas  O'DonnclI, 

Stephen  Kindel,  Harold  Scncker 

Contributing  Editors:  Richard  Phalon, 

Clothicld  Spencer,  Norman  Gall,  Dcro  A.  Saunders 

Associate  Editors:  lean  A.  Bnggs,  Subrata  N  Chakravarty,  Chnstinc 

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FOUNDED  W  BY  B.C.  FORBES  11880-19541 

Hopeful  silence 

The  ongoing  anguish  in  Leba- 
non inevitably  obscures  other 
realities  in  the  Middle  East. 
Chief  among  them  at  the  mo- 
ment, in  our  view,  is  Egypt's 
remarkable  poise  and  relative 
restraint  as  it  picks  its  way, 
carefully,  carefully,  through  a 
maze  of  potentially  explosive 
pressures — enduring  calls  of 
Pan-Arabism,  easy  appeals  of 
Nasserite  socialism,  endemic 
hostility  toward  Israel — to 
maintain  an  "open  door"  to 
Western  capitalism. 

A  fresh  demonstration  of 
the  poise  and  restraint  we 
speak  of  occurred  only  last 
month.  After  the  slaughter  of  Forbes' FA-Ayouty  and  Flint 

innocents  in  the  Palestinian    I 

settlements  of  Shatila  and  Sabra,  and  despite  the  powerful  surge  in  J 
anti-American  sentiment  that  followed,  the  reaction  of  Egypt's  Presi-  I 
dent  Hosni  Mubarak  was  measured  and,  it  would  appear,  effective.  He 
recalled  his  ambassador  to  Israel — a  necessary  gesture  toward  Arab 
solidarity.  But,  no  less  important,  he  did  nothing  else  of  substance. 

As  it  happened,  ferry  Flint,  manager  of  our  Washington  bureau,  and 
Yassin  El-Ayouty,  our  consultant  on  international  affairs,  were  in 
Cairo  when  news  of  the  murders  broke.  Flint  and  El-Ayouty  were 
there  reporting  on  the  state  of  the  Egyptian  economy  one  year  after  J 
Anwar  Sadat's  assassination,  eight  years  after  the  initiation  of  the 
"open  door"  policy  Sadat  promoted.  President  Mubarak's  carefully  ' 
calibrated  response  under  pressure  fitted  in  with  other  readings  they 
took  of  Egypt's  ability,  and  willingness,  to  keep  the  door  open.  There  is 
a  strong  case  to  be  made  that,  the  headlines  of  the  moment  notwith- 
standing, Egypt's  economy  is  among  the  most  important  stories  of  the 
Middle  East.  That's  why  Flint  and  El-Ayouty  had  journeyed  there. 
They  found  a  full  measure  of  intractable  problems,  but  some  hopeful 
steps  toward  solving  them.  Their  report  is  on  page  44. 

Heads  he  wins,  tails  he  wins 

Only  weeks  ago  we  talked  with  Loews  Corp.  Chairman  Laurence 
Tisch  about  investing  (Forbes,  Aug  2).  He  runs  his  S5  billion-a-year 
congolomerate  a  bit  like  a  personal  portfolio,  and  Tisch's  message  to  j 
Forbes  readers  was  straightforward:  Buy  bonds  and  you  can't  lose  in 
today's  market. 

Shortly  after  we  went  to  press,  Wall  Street  went  wild.  Since  falling 
interest  rates  precipitated  much  of  that  gain,  Tisch's  bond  positions 
paid  off  handsomely.  But  he  was  a  major  winner  in  the  stock  market 
rally  too:  Shares  in  Loews  Corp.  went  from  a  low  of  S88  to  a  recent 
high  SI 22.  The  Tisch  family  holds  roughly  50%  of  the  company — so  I 
that  translates  into  a  gain  of  about  S300  million.  The  rich,  as  they  say, 
do  get  richer.  Though  Tisch  isn't  particularly  eager  to  discuss  current 
developments  at  Loews,  he  may  be  plotting  a  new  strategy  there,  too. 
For  a  hint  of  what  's  ahead,  see  page  218. 

Managing  Editor 


FORBES  OCTOBER  25,  1982 


The  number  of  round  trips  required  for  free  travel,  on  Northwest 
Orient,  compared  with  other  airlines'  plans  based  on  mileage. 


5  Chicago-Detroit  107 

5  Minneapolis/St.  Paul-Chicago  75 

5  Boston-Cleveland  45 

3  Washington,  D.C. -Portland  11 

3  New  York-Los  Angeles  10 

2  Dallas/Ft.  Worth-Anchorage  7 

2  Chicago-London  6 


ree  domestic  travel  after 
ve  round  trips — or  less. 
Minimum  $100  each  way.) 


|p  mileage  requirement, 
forth  west  Orient's  Free 
light  Plan  II  counts  the 
umber  of  flights — not  the 
umber  of  miles. 






/  Equal  to  2  trips  \ 
[around  the  world/ 

'Based  on  five  round  trips  between  Chicago 
and  Detroit  at  a  full  Coach  fare. 

Free  travel  to  Europe  and 
the  Orient. 


Double  credits  on  London 
fligh ts.  For  tra  vel  origina  ting 
in  the  U.S.A.  using  an  APEX 
or  higher  fare. 


Your  travel  planner  gets 
free  travel,  too.  No  plan 
with  a  mileage  requirement 
offers  this  benefit. 

For  all  the  details  call  your 
travel  agent,  corporate 
travel  office,  or  any 
Northwest  Orient  ticket 

OUR  WAY:  The  fastest,  easiest 
way  to  earn  free  travel  to  71 
cities  around  the  world. 




A  man  in  searcl 

Get  it  together— buckk 


>f  an  honest  C3X. 

^aveled  around  the  world  looking 
certain  kind  of  car. 
call  it  the  honest  car. 
)nce,  I  would  have  started  my 
i  in  Europe.  Because  Europeans 
□  face  crowded  roads  and  high 
osts  sooner  than  people  in  other 
of  the  world. 

But  things  have  changed, 
you  also  have  to  look  in  the  U.S., 
t  companies  like  Ford, 
nd  what  is  an  honest  car  sup- 
l  to  do?  In  a  few  words:  It's  a  car 
tarts,  stops  and  steers. 
>f  course,  this  is  a  terrific 

Take  the  first  point,  starting. 

small-engined  cars  have  tended 
cranky  starters. 

Drd  has  opted  to  meet  the  prob- 
i  certain  models  with  electronic 
e  controls,  multiple-port  fuel 
ion  and  stronger  starters, 
took  time  and  money,  but  it  was 
sponsible  way  to  go. 
And  then  there's  stopping. 
)ing  quickly,  in  a  straight  line, 
he  car  under  control,  is  the  name 
game  here. 

nd  Ford  products  undergo  exten- 
ding while  striving  to  improve 
braking  characteristics. 

Ford  gets  a  grip  on  it. 
>rd  cars  are  equipped  with  steel- 
1  radial  tires.  But  Ford  doesn't 
here.  On  certain  models,  tires  and 
is  are  "indexed!' 

ince  tires  and  wheels  have  a  "high" 
and  a  "low"  point,  these  are  marked, 

so  "low"  and  "high"  can  be  matched 
when  tire  and  wheel  are  assembled. 

A  small  point,  but  it  is  attention  to 
details  like  these  that  gives  you  a 
rounder  tire  and  wheel  combination  to 
help  ride  quality. 

And  then  there's  steering. 
In  the  past,  many  people  were  content 
with  cars  that  emphasized  boulevard 
ride,  not  handling. 

I've  been  told  that  you  could  blame 
this  on  a  mythical  Aunt  Minnie.  It  was 
said  she  didn't  like  cars  that  responded 
quickly  and  accurately  to  driver  input. 

But  if  Aunt  Minnie  didn't  like  a 
responsive  car,  what  was  she  doing 
tooling  around  in  that  little,  quick-on- 
the-trigger  compact? 

U.S.  drivers  like  a  quick-to-react  car. 

Not  necessarily  a  sports  car.  But  one  that 
feels  like  it's  being  driven  by  the  driver, 
not  some  disinterested  third  party. 
An  impressive  change 
in  one  company's  cars. 
It's  a  change  in  aerodynamics,  in  han- 
dling, in  quality.  In  what  the  engineers 
call  product  integrity. 

I  think  someday  every  good  car  com- 
pany has  got  to  have  this  new  approach 



Call  my  lawyer! 

Free  legal  service  is  catching  on  as  a 
fringe  benefit  in  union  contracts.  Ear- 
lier this  year  General  Motors  agreed 
to  set  up  an  employer-paid  fund  to 
provide  such  a  fringe.  Now  Hyatt  Le- 
gal Services,  a  national  chain  of  legal 
offices,  has  signed  to  do  the  same 
thing  through  the  International  Trust 
of  Legal  Services,  an  employer-paid 
arrangement  created  by  the  Sheet 
Metal  Workers  and  two  trade  associ- 
ations. Initially,  Hyatt  will  run  the 
plan  for  about  15,000  workers  and 
their  families;  by  1986  it's  expected  to 
cover  100,000  families.  "Judging  by 
what  we've  heard,  this  program  is 
wanted  and  needed  by  a  large  number 
of  locals,"  says  the  union  president, 
Edward  Carlough.  Founder  Joel  Hyatt 
of  the  legal  firm  calls  his  plan  "a  mod- 
el for  the  rest  of  the  nation."  Hyatt's 
services  will  include  wills,  divorces, 
real  estate  transactions,  defense  of 
civil  lawsuits  and  the  like.  In  the  25 
cities  where  Hyatt  has  offices,  the  ser- 
vice will  be  exclusive  (as  an  added 
attraction  these  will  be  open  nights 
and  Saturdays).  Elsewhere,  Hyatt  will 
provide  a  list  of  private  law  firms. 

Flying  low 

The  world's  government-owned  air- 
lines rarely  care  about  losing  money — 
they  will  be  around  $2  billion  in  the 
red  this  year — and  thus  bailouts  are 
standard,  except,  it  seems,  for  El  Al, 
Israel's  national  carrier.  Its  passenger 
operations  have  been  shut  down  since 
early  September,  and  (for  now)  every- 
one says  it  will  not  reopen  until  some- 
thing is  done  about  its  sad  perfor- 
mance. Its  chairman  says  he  will  com- 
pletely restructure  the  management 

and  trade  union  setup,  in  hopes  of 
ending  the  airline's  plague  of  strikes. 
(The  latest:  a  petty  dispute  over  com- 
mission payments  for  cabin  sfaff  on 
duty-free  liquor  and  cigarettes.)  El  Al 
(Hebrew  for  "to  the  skies")  has  lost 
around  $200  million  over  the  last  five 
years  ($32  million  last  year).  With  in- 
flation at  an  annual  rate  of  1 30% ,  and  a 
mounting  war  bill,  Israel  can  hardly 
afford  such  luxuries.  The  outcome  de- 
pends on  the  survival  of  the  Begin 
government  (if  the  Labor  opposition 
should  return,  the  trade  unions  will 
stand  pat),  and  Begin's  survival  de- 
pends, among  other  things,  on  two 
small  Orthodox  parties  that  insist  El 
Al  not  fly  on  the  Sabbath.  (The  matter 
is  bogged  down  in  the  courts.)  If  there 
is  no  solution,  El  Al's  managers  say  the 
board  will  recommend  that  the  gov- 
ernment dissolve  the  line.  Unlikely  as 
it  may  sound,  they  also  say  the  Begin 
government  would  agree  to  do  so.  The 
airline  could  then  emerge,  phoenix- 
like, perhaps  with  an  injection  of  pri- 
vate money. 

Women  behind  the  wheel 

Women  bought  40%  of  all  new  cars 
last  year,  $35  billion  worth,  says  the 
Automotive  Information  Council,  a 
Detroit-based  industry  group,  so  auto- 
makers want  to  change  designs  and 
sales  pitches  to  meet  the  market. 
Ford,  for  example,  had  today's  44  mil- 
lion working  women  in  mind  when  it 
set  up  test  programs  ten  months  ago 
in  San  Diego  and  Dallas  to  educate 
independent  dealers  on  women's  ex- 
pectations. "We  are  trying  to  elimi- 
nate the  stereotype,"  says  Marilyn 
King,  manager  of  contemporary  mar- 
keting at  Ford.  (Never  call  anyone 
"honey"    or    "dear,"    dealers  are 

Edited  by  John  A.  Conway 

warned,  and  don't  ignore  women  in 
jeans.)  Carmakers  are  also  redesigning 
and  relocating  door  handles,  foot  ped- 
als, seats,  scat  belts,  instruments  and 
controls,  with  women  in  mind.  But 
new  features,  though  built  for  wom- 
en, will  not  be  for  women  only.  Says 
Ford's  King,  "Everything  that  women 
need,  men  will  appreciate."  The  only 
hitch  is  the  lead  time  in  product  plan- 
ning. Engineers  familiar  with  wom- 
en's needs  today  won't  build  maior 
changes  into  their  cars  until  the  1986- 
87  model  year,  King  says. 

Losers,  weepers 

The  University  of  Minnesota  has 
earned  the  dubious  distinction  of 
owing  the  largest  legal  fees  ever  as- 
sessed against  a  college  and  the  largest 
ever  awarded  under  the  1964  Civil 
Rights  Act's  sex  discrimination  sec- 
tion. A  federal  judge  ordered  the  uni- 
versity to  pay  two  lawyers  $2  million 
for  their  work  in  a  successful  sex  dis- 
crimination suit.  It  has  two  years  to 
pay,  at  11%  interest.  An  associate 
chemistry  professor  filed  the  suit  in 
1973,  but  settled  in  1980  for  $100,000 
after  the  case  was  broadened  to  cover 
all  female  employees  who  were  dis- 
criminated against.  The  judge  said  the 
fees  (three  times  the  usual  rates)  were 
justified  by  the  case's  difficulty,  the 
lawyers'  good  work  and  the  long  delay 
in  payment. 

Dreams  die  hard 

The  single-income  family  has  been 
priced  out  of  the  housing  market  by 
high  interest  rates  and  monthly  pay- 
ments. That  is  the  grim  conclusion  of 
a  new  survey  by  the  Federal  National 
Mortgage  Association  (Fannie  Mae), 
which  owns  1  of  every  20  mortgages 
in  the  country.  But  the  dream  is  still 
alive.  "The  vast  majority  of  Ameri- 
cans still  intend  to  own  their  own 
homes,"  says  David  Maxwell,  chair- 
man of  Fannie  Mae,  "but  they  know  it 
won't  be  as  easy  as  in  the  past." 
(Among  renters,  Fannie  Mae  found 
that  fewer  than  half  could  afford  to 
buy  a  home.)  Another  survey,  by  the 
business-backed  Conference  Board  in 
New  York,  canvassed  5,000  house- 
holds and  turned  up  only  2.1%  plan- 
ning to  buy  a  home.  Most  of  the 
dreamers  in  this  count  said  they 
would  prefer  a  fixed-rate,  30-year 
mortgage,  despite  the  expense  and  the 
increasing  rarity  of  such  loans.  Fannie 
Mae's  poll,  done  by  Louis  Harris, 
found  people  willing  to  take  new, 

An  FA  Al  airliner  sits  on  the  runway 

At  the  moment,  only  the  motto  is  flying. 


FORBES,  OCTOBER  25,  1982 


When  you're  responsible 
•  a  fleet  of  cars,  down  time 
d  repairs  can  be  very  costly. 

That's  why  Hertz  is 
ing  something  to  help, 
om  now  on,  we'll 
t  only  lease  cars 
you,  we'll  help 
u  keep  them  run- 
ng  smoothly.  Just  ask 
r  our  exclusive  Pre- 
ntive  Maintenance 
)upon  Program. 

Then  every  car  you 
ise  comes  with  a  Scheduled 
aintenance  Coupon  Booklet, 
od  for  preventive  maintenance 
rvice  at  7,500-mile  intervals. 

There's  no  additional  charge  if 
u  have  a  full  maintenance  contract, 
a  low  monthly  charge  if  you  don't, 
hat's  more,  there's  no  out-of-pocket 
pense,  since  everything's  transacted 
th  a  single  coupon. 

All  your  drivers  have  to  do  is  present 
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flexible  mortgages  if  it  saved  money 
or  made  buying  easier.  (On  the  bright 
side,  home  prices  were  reckoned  at 
only  2.5%  higher  than  a  year  ago.) 

The  second  time  around 

Recycling  of  cans,  at  least  of  the  alu- 
minum variety,  is  gaining  momen- 
tum. Nearly  25  billion  aluminum 
cans — half  the  total  manufactured 
last  year  and  28%  of  all  cans  made — 
were  recycled  in  1981,  up  150%  *rom 
the  year  before,  according  to  the  Alu- 
minum Association.  The  gain  for  its 
cans  has  increased  1,800%  in  the  last 
decade,  the  association  says,  largely 
because  of  industry  promotions  flog- 
ging the  fact  that  recycling  uses  only 
5%  of  the  energy  needed  to  produce 
new  aluminum  from  ore.  The  picture 
in  steel — key  ingredient  of  the  "tin" 
can — is  not  as  bright.  Nearly  40  bil- 
lion tin  cans  were  rolled  out  last  year, 
but  only  3  billion  were  reclaimed. 
Why?  "Steel's  scrap  value  is  substan- 
tially lower  than  aluminum's,"  ex- 
plains a  spokesman  for  the  American 
Iron  &  Steel  Institute. 

What  price  living? 

Where  should  a  wage  earner  live? 
Union  Bank  of  Switzerland,  in  its  fifth 
survey  of  prices  and  wages,  found  that 
among  the  47  cities  it  checked  to  see 
how  far  take-home  pay  went  toward 
filling  the  larder,  Geneva  ranked  first, 
2%  better  than  Zurich,  the  Swiss  city 
used  as  a  base  for  the  UBS  index.  Chi- 

Where  the  food  dollar 
buys  the  most 


0         20  40 
I     I  I 



San  Francisco 

I      I  I 

Los  Angeles 



I     I  I 



I     I  I 

New  York 

.1     I  I 


I      I  I 


i — r 

I  I 


cago,  San  Francisco  and  Los  Angeles 
ranked  next,  with  New  York,  Mon- 
treal and  Oslo  close  behind.  From 
there  it  was  downhill  all  the  way  to 
Bombay,  where  a  worker's  net  stood 
at  8%  of  what  the  Zurichcr  enjoyed. 
San  Francisco's  working  families  ate 
best,  with  purchasing  power  a  full 
20%  higher  than  Zurich's;  a  Los  An- 
geles paycheck  bought  almost  9% 
more  than  a  Zuncher's;  one  in  New 
York  1.7%  less.  The  Tokyo  home- 
maker  was  among  the  worst  off  in 
setting  the  table  (see  chart).  The  bank 
also  took  a  measure  of  who  made 
what  in  which  job.  For  school- 
teachers, happiness  was  Geneva, 
where  they  earned  $33,400.  Managers 
(those  with  more  than  100  employees) 
were  best  off  in  Chicago,  averaging 
$55,200  a  year.  New  York  finished 
first  for  electrical  engineers  ($40,300). 
Not  surprisingly,  the  Swiss  led  in 
banking,  with  a  Geneva  teller  gross- 
ing a  cool  $28,200. 

One-way  trade  traffic 

The  American  trade  deficit  with  Ja- 
pan is  nearing  $20  billion  this  year, 
says  a  new  report  by  the  Japan  Eco- 
nomic Institute,  a  Washington-based 
agency  funded  by  the  Foreign  Minis- 
try of  Japan.  The  gap  was  $15.8  billion 
last  year  and  $9.9  billion  in  1980.  Jap- 
anese exports  to  the  U.S.  increased 
9.4%  during  the  first  six  months  of 
this  year  in  spite  of  the  recession,  the 
report  says,  while  American  exports 
to  Japan  fell  3%.  The  institute  blames 
high  interest  rates  in  the  U.S.  for 
weakening  the  yen  and  strengthening 
the  dollar.  The  result:  Foreign  imports 
are  cheaper  in  the  U.S.,  and  American 
goods  overseas  more  expensive — so 
expensive  in  some  cases  that  they 
have  been  priced  out  of  the  foreign 

The  cosmopolitan  campus 

The  foreign  undergraduate  population 
on  U.S.  campuses  could  reach  500,000 
(5%  of  the  total)  by  1985  and  close  to 
10%  by  the  year  2000,  according  to 
the  American  Council  on  Education. 
"In  four-year  institutions,"  the  coun- 
cil says,  "the  foreign-domestic  ratio  is 
now  a  little  over  1  in  30;  by  1985  it 
could  be  1  in  15."  At  graduate  schools 
the  trend  is  even  more  marked,  with  1 
in  8  scholars  hailing  from  overseas.  A 
quarter  of  the  engineering  students 
and  16%  of  those  in  business  and 
management  classes  are  now  foreign- 
ers, the  council  adds.  The  engineer 
total  should  remain  level,  but  foreign 
business  students  are  expected  to 
reach  20%  by  1990.  The  rush,  accord- 


FORBES,  OCTOBER  25,  1982 

ing  to  James  Schmotter,  assistant  ad- 
missions dean  at  Cornell's  Graduate 
School  of  Business  and  Public  Admin- 
istration, is  "probably  because  our 
universities  are  seen  as  the  best  place 
in  the  world  to  study."  Another  factor 
he  cites  is  the  rising  level  of  incomes 
in  places  like  Hong  Kong,  Singapore, 
Malaysia,  Indonesia,  Taiwan  and  Ko- 
rea, where  many  foreign  students 
come  from.  "Most  foreign  students," 
Schmotter  says,  "are  now  footing 
their  own  bills."  Still,  American 
schools  are  in  effect  picking  up  part  of 
the  tab  because  tuition  covers  only 
about  75%  of  the  full  cost  of  an  indi- 
vidual student. 

Uptight  and  up  front 

You  don't  have  to  be  neurotic,  but  it 
helps,  concludes  a  report  by  Lee  and 
Alexandra  Benham,  a  husband-and- 
wife  team  at  Washington  University 
of  St.  Louis,  in  an  upcoming  book. 
After  studying  Professor  Lee  Robins' 
data  on  434  white  males,  the  Ben- 
hams  found  that  salaries  for  those 
classified  as  depressed,  anxious  or 
compulsive  ranged  about  23%  higher 
than  for  their  brethren  who  were  diag- 
nosed as  normal.  Most  of  the  neuro- 
tics were  well-educated  and  many  had 
been  reared  by  worried  or  pushy 
mothers.  Did  the  neuroses  produce 
the  higher  incomes  or  vice  versa?  The 
Benhams  (he  is  an  economist,  she  a 
mathematician)  say  it's  hard  to  tell, 
but  they  say  they  lean  to  the  theory 
that  the  neuroses  came  first. 

The  missing  "R" 

Distress  signals  are  flashing  once 
again  about  a  shortage  of  qualified 
high  school  math  teachers.  Only  55% 
of  college  graduates  trained  to  teach 
the  subject  are  going  into  classrooms 
and  many  now  there  are  leaving  for 
better-paying  jobs  in  industry,  accord- 
ing to  the  National  Council  of  Teach- 
ers of  Mathematics.  Bare  handfuls  of 
students  are  prepping  for  math  teach- 
ing in  big  states  like  California  and 
Texas,  the  council  says,  even  though 
large  numbers  of  jobs  are  going  beg- 
ging there.  Ohio's  Democratic  Sena- 
tor (and  Presidential  hopeful)  John 
Glenn  has  proposed  low-interest 
loans  to  collegians  preparing  to  teach 
mathematics  or  science  (another  field 
crying  for  help),  with  a  companion  bill 
designed  to  encourage  companies  to 
give  summer  jobs  to  teachers  in  those 
subjects.  (Alabama  and  Kentucky  al- 
ready offer  forgivable  loans  to  stu- 
dents who  agree  to  teach  math  after 

Does  your  yellow  pad  let  you  down 
just  when  you  need  support?  Look 
at  The  Ampad.  It's  stiff,  like  a 

But ;  ou'll  probably  discover 
even  better  reasons  for  demanding 
The  Ampad.  Like  our  16  lb.  water- 
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other  yellow  pads. 

Other  companies  think  we're 
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good.  But  the  U.S.  Senate  doesn't 
think  we're  crazy.  They  use  The 

Ampad.  So  do  most  people  who 
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It  seems  that  the  more  you  use 
yellow  pads,  the  more  you  appre- 
ciate The  Ampad.  After  all,  why 
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5  American  Pad  &  Paper  Company,  Holyoke,  Massachusetts. 


If  you  are  moving,  let  us  know  six  weeks 
before  so  we  can  keep  Forbes  coming.  En- 
ter your  new  address  on  this  form  and 
return  it  with  a  recent  mailing  label  from 
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To  order  Forbes,  enter  your  address  on  this 
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FORBES,  OCTOBER  25,  1982 




We  could  print  a  long  list  of 
golden  promises  about  Ten- 
nessee's climate  for  new  busi- 
ness. But  we'd  rather  get 
down  to  brass  tacks,  and 
show  you  proof,  not  promises. 
Like  our  central  location  and 
our  old-fashioned  attitude 
toward  hard  work.  We  want  to 
tempt  you  with  a  soothing 
climate  and  sensational  life- 
style. More  proof?  We'll  show 
you  a  growing  list  of  major 
corporations  that  have  come, 
and  stayed.  So  look  at  others' 
promises  and  our  proof. 
Maybe  it's  time  you  got  down 
to  brass  tacks  in  Tennessee. 
For  more  information,  write 
or  call  William  H.  Long,  Ten- 
nessee Department  of  Econo- 
mic and  Community  Devel- 
opment, Andrew  Jackson 
Bldg. , Box  320 ,  Nashville,  TN 
37219,  1-800-251-8594. 


We  get  down  to  Brass  Tacks. 

Ride  'em,  cowboy 

A  year  ago,  Tony  Lama  Co.,  the  El 
Paso  bootmaker,  was  riding  high  on 
the  western  craze  started  by  high- 
fashion  designer  Ralph  Lauren  and 
stampeded  by  movies  like  Urban 
Cowboy.  "The  only  thing  that  can 
hold  us  back  is  how  many  boots  we 
can  make,"  Chief  Executive  V.  (for 
Verland)  Eugene  Hosey  told  Forbes 

postponable.  Also,  part  of  it  is  because; 
of  the  end  of  the  trail  for  the  Urban 
Cowboy  craze.  Says  Clamour  magazine) 
fashion  editor  Phyllis  Posnick,  "It) 
really  is  finished."  Many  companies; 
in  the  $5  billion-a-year  western  cloth 
ing  industry  got  caught  when  the  John 
Travolta  fans  turned  to  other  fads.  "A 
lot  of  stores  overbought,"  explains 
Sylvia  Kornelsen,  executive  director 
of  the  Denver-based  Western  &  En 

A  lineup  of  Tony  Lama  handmade  boots 

The  fad  may  have  run  its  course  but  the  fashion  is  riding  high. 

(Nov.  9,  1981).  Sales  for  the  first  half  of 
1981  had  been  $46  million,  just  shy  of 
the  total  for  all  of  1979;  earnings  were 
up  105%.  Hosey  had  such  high  hopes 
that  he  had  just  opened  a  $3  million, 
80,000-square-foot  plant  to  specialize 
in  Lama's  line  of  exotic  skins  (ostrich, 
kangaroo,  etc.),  raising  his  total  pro- 
duction of  handcrafted  boots  to  5,700 
pairs  a  day  from  4,400.  "The  reality  is 
that  competition  in  boots  is  increas- 
ing," Forbes  cautioned,  wondering 
where  all  the  demand  for  boots  would 
come  from. 

Boot  sales  for  Lama  have  turned 
down  at  the  heel  since  then.  Earnings 
dropped  by  more  than  half,  to  $1.2 
million  for  the  second  quarter  of  this 
year,  as  demand  reportedly  dropped  to 
4,000  pairs  a  day.  Last  month,  the 
company  cut  its  work  force  by  20% 
and  its  inventory  is  still  climbing,  ac- 
cording to  analyst  Craig  Weichmann 
at  Memphis'  Morgan,  Keegan  &  Co. 
(Hosey  and  other  Lama  brass  weren't 
talking.)  "Orders  usually  pick  up  in 
July  and  August,  for  the  Christmas 
season,"  Weichmann  says.  "It  didn't 
happen  this  year." 

Part  of  the  pinch  on  Lama  is,  of 
course,  the  recession,  when  $1,000- 
and-up  fancy  boots  become  readily 

glish    Manufacturers  Association 
"Then,  all  of  a  sudden,  they  didn't! 
know  what  to  do."  She  adds,  however,( 
that  the  overstock  was  chiefly  flashy 
cheaper  items  because  the  Urban  Cou 
boy  son  of  the  West  was  a  flash  in  the 
pan.  "Basic,  traditional  Western  at 
tire,"  she  says,  "is  as  stable  an  Ameri 
can  fashion  as  there  is."  Echoes  editoE 
Posnick:  "People  will  always  buy, 
boots."  The  western  style  boot  ac 
counts  for  an  estimated  $1.1  billion  ini 
retail  sales  annually  and  it's  expected 
to  stay  at  that  level.  Lama  was  crowd 
ed  off  some  shelves  by  the  flood  of) 
cheaper  boots,  but  its  hold  on  the 
higher-priced  market  is  unshaken. 

Fashion  experts  aren't  the  only  ones 
who  see  the  boot  business  staying  ini 
stride.  The  Tony  Lama  Co.,  45%  fam 
ily  owned,  has  been  interested  in  find 
ing'a  buyer.  Now  they  have  one.  New 
York's  Triton  Group  Ltd.,  the  final 
metamorphosis  of  the  old  Chase  Man- 
hattan Mortgage  and  Realty  Trust, 
has  signed  a  letter  of  intent  to  buy 
Tony  Lama  for  $81  million  or  $35  a 
share.  Triton's  1981  gross  income  was 
only  $21  million  (compared  with  La- 
ma's $98  million  in  sales),  and  its 
assets  are  only  $55  million — but  it 
boasts  a  $150  million  tax-loss  carry- 


FORBES,  OCTOBER  25,  1982 

It  died  of  unnatural  causes. 

i—oo  many  factories  in  too 
I  many  American  cities 
I  are  dying.  Unnecessarily 
M  prematurely.  They  are 
p  products  of  an  unproduc- 
e  economy.  Our  economy. 
Not  long  ago,  we  all 
Dught  it  just  couldn't  hap- 
in  here. 

The  fact  is,  however,  that 
3  United  States  has  the 
jhest  percentage  of  obso- 
e  plants,  the  lowest  per- 
ntage  of  capital  investment 
id  the  lowest  growth  of  pro- 
bctivity  of  any  major  indus- 
il  country. 

That  didn't  happen  over- 
ght,  of  course.  This  chart 
lints  out  just  how  much, 
d  how  rapidly,  our  econ- 
ny  has  declined: 



|1959  '66 

1973  -'80 

i Comparing  the  early  60s 
th  the  late  70's,  America's 
rerage  annual  growth  in 
Dductivity  was  lower  by 
b%.  Allowing  tor  inflation, 
al  investment  growth  in 
bnts,  machinery  and 
puipment  dropped  by  74%. 
No  one  can  expect  labor 
i  produce  without  tools.  But 
hce  1975,  there's  been  a 
eady  decline  in  the  amount 
capital  per  worker  in  this 

A  close  examination  of  our 
economic  illness  points  to 
one  major  cause:  An  over- 
dose of  government. 

Ever  increasing  levels  of 
government  spending  and 
borrowing  have  squeezed 
productive  industry  out  of 
credit  markets. 

Without  credit,  businesses 
cannot  buy  the  plant  and 
equipment  they  need  to  ex- 
pand and  increase  their 

This  chart  shows  the  grow- 
ing impact  of  government 
borrowing  as  a  percentage  of 

GNP  and  of  total  borrowing 
over  a  thirty-year  period: 



50  s  60's  70's  '80 

As  the  government  ex- 
panded its  borrowing,  private 
industry  cut  back.  To  reverse 

this  trend,  growth  in  govern- 
ment spending  must  be 
slowed  in  the  years  ahead. 

Hidden  in  all  these  statis- 
tics are  countless  human 
losses:  Lost  jobs,  lost  in- 
comes-lost dreams. 

We're  W.R.  Grace  &  Co., 
a  $61/2  billion  company  pro- 
ducing chemicals,  natural 
resources  and  consumer 
products.  Even  though  our 
interests  are  worldwide,  we 
consider  the  loss  of  any 
American  industry  a  death  in 
the  family.  And  we  believe  we 
all  have  a  responsibility  to 
revive  productivity  at  home. To 
do  that,  we  must  invest. 

Our  own  capital  expendi- 
tures through  the  years  testify 
to  that  belief.  From  1965- 
1975,  our  average  annual 
increase  in  capital  expendi- 
tures was  8.9%.  From  1975- 
1981,  we  averaged  an  18.7% 
increase  per  year. 

And  now  by  cutting  taxes, 
eliminating  excess  regulation 
and  by  providing  the  impetus 
to  reduce  the  size  of  the  fed- 
eral government,  President 
Reagan  has  supplied  us  all 
with  new  incentives.  We  must 
make  the  most  of  them 

The  drive  and  dreams  that 
first  built  America's  factories 
are  needed  now  to  unlock  a 
productive  future  for  our  nation. 
And  each  of  us  holds  the  key. 


One  step  ahead 
of  a  changing  world. 

WR  Grace  &  Co.  1114  Avenue  of  the  Americas.  New  York,  N  Y  10036 

Your  thoughts  and  ideas  are 
the  only  things  that  separate 
you  from  the  rest  of  the  crowd. 

But  while  you're  plodding 
along  with  a  pencil,  writing 
down  one  thought  at  a  time, 
others  can  be  lost  forever. 

And  the  ideas  that  get  away, 
the  notes  that  never  get  written, 
can  make  the  difference 
between  rising  to  the  top.  Or 
being  stuck  in  the  middle. 


Now,  with  a  Thought 
Processor  from  Lanier,  you  can 
capture  your  thoughts  the 
moment  they  occur. 

No  more  lost  thoughts. 

No  more  lost  opportunities. 

Lanier  Thought  Processors 
include  the  revolutionary 
Messenger.™  Just  touch  a  button 
on  the  executive  unit  on  your 
desk  and  it  activates  one  of  four 

microcassettes  in  the  unit  on 
your  secretary's  desk. 

Use  each  one  for  a  different 
subject.  You  can  organize  your 
thoughts  as  you  go  along.  And 
first  things  will  get  done  first. 

Plus,  you  can  activate  the 
Messenger  from  just  about  an 
phone  in  the  world.  So  even 
when  you're  not  in  the  office, 
you  can  get  those  important 
thoughts  off  your  mind.  And  | 
into  action. 




)nce  you've  captured  your 
>ughts  and  ideas,  the  Lanier 
-1™  Work  Processor  helps 
or  secretary  get  them  on 
Der  faster  than  ever  before, 
ryping  is  easy.  Changes  and 
rections  are  made  simply, 
^o  retyping.  No  false  starts, 
ur  thoughts  will  appear  on 
!  page  letter-perfect. 
\nd  because  the  EZ-1  is  a 

Work  Processor,  it's  capable  ot  a 
lot  more.  Like  processing  data 
and  even  acting  like  a  small 
business  computer. 

No  one  else  offers  you  both 
Thought  Processing  and  Work 
Processing.  From  start  to  finish, 
Lanier's  the  one  to  help  you  get 
ahead  faster. 

Send  us  this  coupon  or  call 
to  set  up  an  immediate  appoint- 
ment. (800)  241-1706  except  in 
Alaska  and  Hawaii.  In  Georgia 
call  collect  (404)  321-1244. 

Please  arrange  for  a  demonstration  of: 

□  Thought  Processing.  □  Work  Processing. 





— >    Business  Address 





Mail  to  Lanier  Business  Products,  Inc. 

1700  Chantilly  Drive  N.E.,  Atlanta,  GA  30324 


Before  your  product  design  is  cast 
in  cement,  call  Bodine,  We've  got  some 
concrete  ideas  to  help  you  assemble  it 

We'll  start  by  evaluating  your 
product.  We'll  tell  you  if  you 
need  to  modify  it  for  automated 
assembly.  Then  we'll  tell  you 
how.  In  most  cases  the  changes 
will  be  really  minor,  but  the 
benefits  can  be  major  indeed. 

Bodine  machines  can  reduce 
personnel,  inventory  and  field 
service  costs  while  increasing 
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consistency  and  quality. 

To  find  out  more,  write  for 
our  free  brochure,  "Bodme's 
Assembly  Primer",  or  call  our 
vice  president  Frank  Riley  for 
an  appointment.  The  Bodine 
Corporation,  317  Mountain 
Grove  Street,  Bridgeport,  Con- 
necticut 06605. 
(203)  334-3107. 


forward  and  needs  earnings  to  use  it. 

Triton  was  impressed  with  Lama's 
management,  earnings  and  prospects, 
according  to  Executive  Vice  President 
William  Sivitz.  So  impressed,  it  is 
willing  to  take  on  about  $36  million 
in  debt  when  and  if  the  deal  closes  on 
schedule  next  January.  "This  is  a  soft 
year  for  Tony  Lama,"  Sivitz  says,  "but 
they  will  make  more  than  enough  to 
pay  off  the  debt  we  will  take  on  to 
acquire  them."  Triton  also  hopes  to 
help  Lama  expand  its  market  east  of 
the  Mississippi  (it  is  now  80%  in  the 
western  half  of  the  U.S.,  40%  in  Texas 
alone).  The  Triton  executive  says  La^ 
ma's  extra  and  now  idle  production 
capacity  "could  be  a  real  asset." 

Selling  off  a  jewel 

In  a  generally  gloomy  future,  one  of ( 
Southern  Pacific's  bright  spots  has 
been  telecommunications,  ForbesI 
said  Aug.  26.  SP's  Southern  Pacific! 
Communications  Co.  broke  into  thei 
black  last  year  with  $34  million  id 
operating  profit  and  piled  another) 
$37.1  million  on  top  of  that  during  the) 
first  half  of  1982.  True,  SPCC  is  about) 
half  the  size  of  MCI,  number  two  ia 
the  field,  but  the  $40  billion  longi 
distance  business  is  growing  by  10%i 
to  15%  a  year.  Then  again,  unlike) 
MCI,  SPCC  has  been  moving  into  the 
satellite  business  with  two  space  sat- 
ellites (at  a  cost  of  $200  million). 

The  prospects  for  SPCC,  in  factJ 
were  so  rosy  that  Chairman  Benjamin 
F.  Biaggini  predicted  that  "by  the  end 
of  the  decade  SPCC  could  be  produc- 
ing half  of  Southern  Pacific's  rev 
enues — and  at  last  year's  levels  that 
would  be  over  $3  billion  a  year."  The 
trouble  was  that  the  railroad  and  the 
telecommunications  businesses  each 
required  enormous  capital,  leaving 
Biaggini  with  the  painful  choice  ol 
giving  up  one  or  the  other.  Otherwise 
Forbes  commented,  "SP's  slide  ma^j 
be  irreversible."  The  chairman's  reaC' 
tion  was  an  outraged  denial. 

This  month  GTE  and  Southern  Pa- 
cific announced  that  they  had  reachec 
an  agreement  calling  for  GTE  to  ac 
quire  all  the  stock  of  SP's  communi 
cations  and  satellite  subsidiaries  foi 
about  $750  million.  Said  Biaggini 
"The  proposed  sale  puts  this  moderr 
telecommunications  company  ir 
good  hands  and  provides  Southern  Pa 
cific  a  generous  return  on  its  ongina 
investment."  SP's  chairman  hac 
made   his   choice — telecommunica 

tions  was  out. 

FORBES,  OCTOBER  25,  1982 


How  long  do  you  want  it  to  take? 
It's  up  to  you. 

At  Berlitz,  we  put  the  fastest,  the 
easiest  and  the  most  effective  way 
to  learn  a  language  right  on  the 
tip  of  your  tongue. 

Thanks  to  our  simple,  conversa- 
tional approach,  you  can  learn 
French,  German,  Spanish  or 
any  other  language  the  way  you 
learned  English.  By  hearing  it  and 
speaking  it. 

Our  highly  trained  instructors 
speak  only  in  the  language  you're 
learning.  So  you  learn  to  commu- 
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And  at  Berlitz,  the  accent  is  on 
individual  needs.  For  instance,  if 
you  need  to  learn  a  language  fast, 
we  can  help  you  with  our  exclusive 
Total  Immersion™  program.  So  in 

as  little  time  as  possible,  you  can 
attend  business  or  social  affairs 
with  a  comfortable  command  of 
the  new  language. 

You'll  find  that  learning  another 
country's  language  the  Berlitz 
way  is  the  next  best  thing  to  being 
born  there. 

To  find  out  what  program  is  best 
for  you,  send  in  this  coupon.  Or 
call  your  nearest  Berlitz  school, 
or  800-257-9449. 

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The  Berlitz  School  of  Languages 
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Princeton,  New  Jersey  08540 







Banking  in  th 
Mellon  define 

What  executives  need  to  know 

Corporate  financial  officers  dealing  with  banks 
today  face  new  and  unfamiliar  issues.  The  bank- 
ing industry  is  in  the  midst  of  unprecedented 
change ,  for  reasons  ranging  from  regulatory 
reforms  to  revolutionary  technologies  and  harsh 
economic  conditions.  As  a  result,  corporate 
executives  find  themselves  dealing  with  new 
challenges  such  as  these: 

•  The  end  of  float: 

Is  cash  management  sunk? 

•  Bank  automation : 
What  it  means 

•  What  businesses  should  banks  be  in? 

•  Relationship  management: 

New  demands  on  the  account  officer 

What  strikes  us  at  Mellon  Bank  is  that  execu- 
tives aren't  getting  the  information  they  need 
about  these  new  issues.  No  bank  has  taken 
responsibility  for  offering  simple,  concise 
definitions  of  the  latest  developments  and 
what  they  mean. 

So  we  have  decided  to  do  just  that. 

In  a  series  of  advertisements  in  this  public 
and  others,  over  the  months  to  come,  MeL 
going  to  define  some  of  the  most  importa 
banking  issues  of  the  1980s.  Issues  like  tl" 
we've  listed— and  other  important  new  is: 
as  they  arise.  We  won't  be  selling  our  proc 
or  our  point  of  view,  but  laying  out  the  fae 
objectively,  so  that  financial  officers  can  f 
their  own  opinions. 

Why  Mellon  is  taking  this  initiative 

We  feel  that  it's  appropriate  for  us  to  do  tl 
because  Mellon  is  one  of  the  handful  of  b< 
that  are  defining  the  future  of  banking.  It 
no  exaggeration  to  say  that  we  helped  ma 
banking  in  this  country  what  it  is  today.  ( 
roots  run  more  than  a  century  deep,  throi 
booms  and  panics,  national  triumphs  and  c 
and  profound  economic  changes. 

Even  before  Judge  Thomas  Mellon  establi 
his  bank  on  Pittsburgh's  Smithfield  Stree 
in  1869,  the  Mellon  name  was  associated  v 
enterprise  and  financial  stability.  One  of  t 
bank's  first  customers  was  a  young  bookke 
named  Henry  Clay  Frick,  who  began  to  b 
an  industrial  empire  on  a  $10,000  loan  froi 
Judge  Mellon. 


sey  issues 

ct,  the  early  history  of  Mellon  Bank 
ndes  with  the  birth  of  Industrial  America 
e  period  when  people  of  vision,  many 
em  supported  by  our  bank,  laid  the 
dations  of  some  of  the  country's  great 

j  we're  prepared  for  the  '80s 

Dn  Bank  has  become  one  of  the  largest 
wealthiest  financial  institutions  in  the 
try.  Consider  these  facts : 

mericas  14,000  banks,  we  rank  15th  in 

balance  sheet  is  one  of  the  strongest,  with 
everage,  liquidity,  and  a  strong  capital 
.  This  not  only  means  security  for  our 
cholders  and  customers  — it  means  we  are 
positioned  to  increase  our  earnings  and 
nd  into  new  markets. 

If  you're  surprised  to  learn  these  facts  about 
Mellon,  it's  because  we've  traditionally  kept  a 
low  profile.  Many  business  people  aren't  aware 
that  we  helped  start  the  computer  revolution 
almost  thirty  years  ago,  when  we  became  one 
of  the  first  banks  in  America  with  its  own 
computer.  Tbday  we're  recognized  as  a  leader 
in  computer  technology,  and  as  an  innovator  in 
applying  that  technology  to  cash  management 
systems  for  major  corporations. 

Whatever  the  future  of  banking  holds,  we're 
ready  for  it.  We  spend  a  great  deal  of  effort  on 
examining  and  defining  the  financial  issues  of 
the  future.  Now  we  want  to  share  some  of  our 
thoughts  with  you. 

Mellon  Bank  and  Mellon  Financial  Services, 
which  provides  consumer  and  commercial 
financing,  leasing,  and  mortgage  banking,  are 
subsidiaries  of  Mellon  National  Corporation. 

e  long  since  outgrown  our  traditional 
tdaries.  Recently,  Atlanta,  Boston,  Miami 
Ibronto  joined  the  list  of  cities  worldwide 
Mellon  representation. 

Mellon  Bank 

One  of  the  banks  that  define  banking 

Readers  Say 


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Out  of  toon? 

Sir:  You  leveled  unjustified  charges 
against  my  attitude  toward  some  am- 
bassadorial appointments  made'under 
this  Administration  (Fact  and  Com- 
ment, Sept  13). 

People  serving  as  our  ambassadors 
abroad  should  have  demonstrated  be- 
fore their  appointment  their  qualifica- 
tions to  serve.  Many  of  the  appointees 
have  not  distinguished  themselves  in 
private  life,  many  are  relatively  un- 
known and  many  simply  do  not  have 
the  qualifications. 

We  can  ill  afford  to  have  inad- 
equately qualified  personnel  serving 
us  abroad — whether  they  come  from 
the  career  ranks  or  from  the  outside.  If 
this  is  "nasty  vilification  of  our  coun- 
try's present  ambassadors" — as  you 
put  it  in  your  editorial — so  be  it. 
— Malcolm  Toon 
Marquette  I  'niversity 
Milwaukee,  Wis. 

Sir:  Those  of  us  who  were  singled  out 
for  criticism  by  Malcolm  Toon  much 
appreciate  your  support. 

—John  J.  Louis  Jr. 
U.S.  Embass)' 

Sir:  Those  of  us  whom  the  President 
appointed  take  our  positions  very  se- 
riously and  work  very  hard  at  creating 
and  maintaining  good  relationships 
between  the  U.S.  and  the  countries  to 
which  we  have  been  sent. 
— Maxwell  M.  Rabb 
U.S.  Embassy 

Sir:  I  understand  from  my  career 
friends  in  the  State  Department  that 
Toon  is  given  to  bizarre  diversions,  so 
I  didn't  bother  to  skewer  him. 

— Evan  G.  Galbraith 
U.S.  Embassy 

More  on  The  Forbes  400 

Sir:  My  financial  position  has  not 
been  correctly  reported  by  Forbes. 
And  it  brings  me  no  pleasure  to  be  on 
your  list. 

— Philip  F.  Anschutz 
Denver,  Colo. 

Sir:  On  target  in  describing  what  I 
have  in  the  world's  goods.  Most  of  my 


estate  goes  to  charity.  A  great,  con- 
structive job.  Keep  up  the  good  work. 

— Nathan  Cwnmings 
New  York,  N  Y. 

Sir:  You  may  note  the  absence  of  a 
terse  derogatory  characterization  of 
you.  My  repertoire  is  ample,  but  you 
are  unworthy  of  all. 

— Giles  W.  Mead 
Napa,  Calif 

Sir:  I  enjoyed  The  Forbes  Four  Hun- 
dred. It  was  fun! 

— Norman  Robert 
Inc.  Magazine 
High  Technology 
Technology  Illustrated 
Boston,  Mass. 

Sir:  You  use  the  word  "enormity"  to 
describe  the  task  of  compiling  The 
Forbes  Four  Hundred.  Enormity 
means  "monstrous  evil,"  not  mon- 
strous size  or  difficulty. 
— Harry  Chernoff 
Arlington,  Va 

You  didn't  read  far  enough  in  the  dic- 
tionary  re  "enormity."  Webster's  defini- 
tion includes  "3)  the  quality  or  state  of 
being  huge,  immensity, " — MSF 

Sir:  The  Forbes  Four  Hundred;  The 
Forbes  500s;  The  Fortune  500;  The 
Indy  500  (what?);  billion-dollar  corpo- 
rations; people  who  eat  and  sleep  just 
like  me  who  have  over  100  million 
bucks;  some  over  a  billion! 

I  wonder  if  they,  or  you,  can  possi- 
bly understand  the  queasy  feeling  in 
someone  who  has  withdrawn  his  last 
thousand-dollar  CD  prematurely,  and 
right  afterward  cashed  in  a  Keogh  that 
was  only  two  years  old  to  meet  the 
mortgage,  car  payment,  insurance  and 
taxes.  Trying  to  be  a  Capitalistic  Re- 
publican Entrepreneur  is  tough  when 
you  haven't  had  a  contract  for  two 
months  and  the  IRS  is  continually  on 
your  back. 
— Richard  J.  Agresti 
President  (and  housecleaner), 
Sheltered  Harbor  Standard';,  Inc. 
Copiague,  N.Y. 

Sir:  As  a  psychologist,  I  am  all  for 
senior  citizens  keeping  active,  but  I 
am  amazed  that  with  all  Bob  Hope's 
resources  he  can't  find  anything  more 
interesting  and  creative  to  do  than 
continuously  traveling  around  the 
country  giving  comedy  performances. 
It  appears  to  be  very  obsessive-com- 
pulsive behavior.  He  must  continual- 

FORBES,  OCTOBER  25,  1982 

ly  exhibit  and  receive  love  and  admi- 
ration. I  offer  my  psychotherapeutic 
services  to  help  him  get  over  this  neu- 
rotic need. 

While  this  offer  is  made  altruisti- 
cally, it  has  crossed  my  mind  that  he 
could  pay  a  fee  slightly  more  than  I 
am  accustomed  to. 
— Ed  J.  Gunderson,  MA. 
Milwaukee,  Wis. 

Sir:  Your  profile  of  Donald  L.  Bren 
mistakenly  states  he  is  the  son  of 
Claire  Trevor.  Mr.  Bren  is  the  son  of 
my  wife,  Mrs.  Earle  M.  (Marion)  Jor- 
gensen,  and  her  ex-husband,  Milton 
Bren,  now  deceased.  Donald  L.  Bren  is 
the  stepson  of  Claire  Trevor,  widow  of 
Milton  Bren. 
— Earle  M.  Jorgemen 

Earle  M.  Jorgemen  Co. 
Los  Angeles,  Calif. 

How's  that  again''' — Ed. 


Sir:  Thought  you  might  like  to  know 
what  members  of  the  English  Forbes 
clan  are  up  to  these  days. 

This  snapshot  was  taken  off  Fleet 
Street  in  London  recently. 
—Jack  Fletcher 
San  Diego,  Calif. 

No  Oscar  here 

Sir:  I  hope  John  Rutledge  (Other  Com- 
ments, Sept.  27)  knows  more  about  eco- 
nomics than  motion  pictures.  The 
movie  he  was  referring  to  was  Rebel 
Without  a  Cause,  not  "Rebel  Without  a 
Chevy."  James  Dean's  opponent  in 
the  "chicken"  game  was  not  Sal 
Mineo;  it  was  Dean's  opponent,  not 
Dean,  who  went  over  the  cliff;  and  he 
did  so  because  his  jacket  cuff,  not 
pants  cuff,  got  caught  on  the  door 
handle,  not  brake  pedal. 
— Ted  Pauls 
Baltimore,  Md. 

For  those  who  demand  the  best. 



Customized®clothes  for  men  and  women. 

"Quality  isn't  something  that  can 
be  promised  into  an  article.  It 
must  be  put  there.  If  it  isn't  put 
there,  the  finest  sales  talk  in  the 
world  won't  act  as  a  substitute." 

®1983  Hickey- Freeman  Co.,  Inc.  1155  Clinton  Ave.,  N„  Rochester,  NY  14621. 

FORBES,  OCTOBER  25,  1982 


For  you,  first  class  is  a  way  of  life. 
From  the  plane  you  fly. .  .to  the  car  you  drive. 
Seville... Cadillac's  finest. 
Elegant.  Distinctive.  Superbly  crafted. 
A  car  for  those  who  choose  to  go  first  class  all  the  way 




"With  all  thy  getting  get  understanding" 

Fact  and  Comment 

By  Malcolm  S.  Forbes,  Editor-in-Chief 


Those  who  in  growing  numbers  are  urging  a  flat-rate  return  for  a  simplified  tax  form,  would  have  to  be  over  the 

income  tax  remind  me  of  desert  travelers,  dying  of  thirst,  bodies  of  the  beneficiaries.  It's  as  unlikely  as  a  snowball's 

who  keep  seeing  oases  on  the  distant  horizon.  They  envi-  survival  in  the  Sahara. 

sion  that,  with  a  flat-rate  tax  across  the  board,  all  the  And  how  long  do  you  suppose,  if  there  were  a  flat  tax,  it 

deductions,  all  the  special  cases,  all  the  complications  of  would  stay  flat  for  higher  income  levels?  Do  you  think 

our  income  tax  forms  would  be  done  away  with.  that  it  would  take  more  than  one  congressional  session 

Fortunately,  a  flat  tax  is  as  likely  of  passage  as,  unfortu-  later  before  those  earning  over,  say,  $25,000  a  year  would 

nately,  the  federal  budget  is  likely  of  b